Coordinating bundled payments: The first step toward coordinated care

In the shift away from fee-for-service to coordinated care models, healthcare organizations are reaping benefits by bundling payments for particular episodes of care. While still in the early stages, bundled payments promise to save costs and improve quality, and have already improved communication and collaboration among major players along the continuum of care.

“Episodes or care [a.k.a. bundles] provide a middle ground between fee-for-service and full capitation that allows for a level of planning, analysis and cross organization comparison that is fair and equitable,” says Graham Hughes, MD, chief medical officer for the SAS Center for Health Analytics and Insights, a provider of analytical software and services headquartered in Cary, North Carolina. “Bundles hold the promise of creating an apples-to-apples comparison for the most common types of care episodes -- and one that allows for competition based on cost and quality standards that can then be compared fairly across institutions.”

Key to the early success of bundled payment initiatives is the ability to focus on distinct episodes of care, rather than taking on a complete payment system overhaul. The bundled payments for particular episodes of care can be created, in large part, using existing claims data.

“I once heard episodes of care described as a bite-sized strategy to improve and transform how healthcare is delivered and paid for in the United States,” says Lili Brillstein, director, Episodes of Care, Horizon Blue Cross Blue Shield of New Jersey. “It’s true. You can pick an episode and look at that piece, and begin to understand how one has to transform healthcare to deliver better quality outcomes at a lower cost.”

The U.S. Centers for Medicare and Medicaid Services’ (CMS) Bundled Payments for Care Improvement initiative (BPCI) defines four financial and performance models for 48 episodes of care. The episodes of care include diagnosis-related groups (DRGs), which allow healthcare organizations to use claims data to estimate a bundled payment. The more distinct the episode of care, the easier it is to correctly estimate a bundled payment.

While payers have claims data readily available, they may not have the technology infrastructure in place to automatically analyze that data. However, several third-parties can provide that service.
“If you’re using the best practices in implementing the bundled payment program, including retrospective reconciliations, selecting a ‘quarterback’ for the episode, instituting stop-loss arrangements, using standard definitions of episodes, there are very few challenges,” says Francois de Brantes, MBA, executive director of the Health Care Incentives Improvement Institute in Newtown, Connecticut. “If you’re a payer and want to fully scale a bundled payment program, you need a claims adjudication system that can handle these payments, and that’s a significant challenge for almost all payers.”

Next: Building the right bundle

Building the right bundle

North Shore-LIJ Health System, Great Neck, New York, was approved by CMS for nine bundles revolving around orthopedic, cardiac surgery, stroke and chronic obstructive pulmonary disease. Howard Gold, executive vice president and chief managed care and business development officer for North Shore-LIJ, says surgical episodes are the best place to start because they’re more clearly defined in terms of finances and services provided.

"Bundled payments are one of most intensive programmatic initiatives we’ve been involved in since ACA,” he says.

Gold says North Shore-LIJ Health System’s implementation of bundled payments took about a year of work and involved about 100 people. It’s effective start date was in January of this year.

“It required extensive preliminary analysis,” he says. “We looked at claims data on Medicare to determine the total cost of care, then polled a lot of physicians and administrators to determine which categories could be managed to effect a savings and better outcome. We looked at a tremendous amount of data and worked with an outside consultant.”

When it comes to implementing a new model for healthcare payments that brings payers, providers and administrators together, a year is a relatively short timeframe. North Shore-LIJ Health System should know the initial results soon, but Gold expects to save more than the planned 3%. He says he has already seen less-tangible benefits.

“Bundled payments have the potential to teach us how to organize care across the continuum,” he says. “They require us to take care of the patient for a longer time. They require us to organize physicians in each hospital and administrators and every service line who would touch the patient, including nursing homes and pharmacies.”

Gold calls the BPCI initiative one of the most potentially effective program pilots coming out of the ACA.

“When we started, no one knew what a bundle was,” he says. “This taught people more about taking care of the whole patient over a longer period of time than almost anything else.”
Horizon Blue Cross Blue Shield of New Jersey started its bundled payment pilot in 2010 with total hip and knee replacements. That was three years before the CMS BPCI initiative began in earnest. Horizon uses the PROMETHEUS algorithms from HCI3.

By the end of 2012, Brillstein says, the insurer had seen enough success interms of improved patient quality, patient satisfaction (over 95%) and cost reduction, that it decided to expand its bundled payments efforts to additional orthopedic episodes, as well as obstetrics, colonoscopy and oncology. During the pilot phase from 2010 to 2013, Horizon Blue Cross Blue Shield of New Jersey completed an estimated 1,100 episodes, cumulatively. In 2014 alone, that number will jump to 8,000.

Next: Retrospective vs. prospective payments

Retrospective vs. prospective payments

Like three of the BPCI models, both North Shore-LIJ Health System’s and Horizon Blue Cross Blue Shield of New Jersey’s initiatives are retrospective, meaning costs are reconciled against a target price after an episode of care. The fourth BPCI model, and one that is more challenging is a prospective model.

“In the prospective model, providers are given a certain amount of money up front (i.e., before the episode begins)” Brillstein says. “Most providers are not in a position to accept up front payment and don’t have the infrastructure or downstream agreements to manage and distribute payments across the healthcare continuum.”

In Horizon’s retrospective implementation, all providers throughout the continuum get paid at fee-for-service rates as their care is delivered. All episodes are reviewed against quality benchmarks and patient experience thresholds. Then, if costs come in below budget, savings are shared with the “conductor” as Brillstein refers to the provider who is contracted for the episode management.
Brillstein says she doesn’t think she’ll see a time when bundling is only prospective, but she does expect to introduce it in the future in conjunction with their retrospective program. 

Gold agrees that widespread use of a prospective model is still far in the future for bundled payments.

“We’re not there yet,” he says. “It would require different administration, an infrastructure for payment distribution and stopping fee for service altogether.”

But retrospective bundled payments are laying the important groundwork for trust between payers and providers that will be needed for a prospective model to succeed. Horizon Blue Cross Blue Shield of New Jersey has provider partners who are already interested in moving toward a prospective model. That willingness to move forward with quality-based care is one of the most important outcomes of Horizon’s bundled payment initiative, Brillstein says.

The insurance company has become “the facilitator of change on the provider side,” she says, by creating opportunities for doctors and other providers to talk to each other and share best practices. “One of greatest successes of this effort is that doctors want us to engage their colleagues. They believe in the program and they see it working,” she says. “They actually like us now. It is very collaborative.”