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Consider shifting to condition episodes and linking member benefits
In 2008, supported by a grant from the Robert Wood Johnson Foundation, several communities around the country launched bundled-payment efforts as a way to correct many of the well-documented failures of the healthcare system. While the results of those implementations were mixed, they opened the way for further implementations by private and public sector payers.
A report published in May 2013 by the Health Care Incentives Improvement Institute shows that bundled payments are now widespread.
de BrantesThe preferred models today seem to be focused on procedural episodes, such a joint replacements and cardiac interventions. There are, however, many other implementations under development or in process of launch over the next several years that provide insights into a very different bundled payment landscape than we have today.
There are a few important themes to-date across all the implementations.
• The commitment of payers and providers to engage in risk-based payment contracts. Without a full commitment, the potential for success is significantly diminished and, in fact, the early implementations that failed did so because of a lack of commitment on the part of one of the two parties.
• The need for structural reforms in both payer and provider infrastructure. Payers need to adopt modified claims adjudication and benefit administration systems because the current systems are built almost exclusively to manage fee-for-service payments. Providers need to create very rapid clinical feedback loops to better understand the effects of their patient management. They also need clear and detailed reports on the total costs of each patient episode so that they can better determine which decisions to make about downstream providers.
• Rewards. Provider reengineering around bundles must be rewarded by market share to encourage and sustain the improvements in efficiency.
While bundled payments, like any payment reform effort, has proved challenging, the organizations that have adopted these lessons are realizing positive effects and expanding the scope of their programs.
The new directions in payment can be summed into four categories.
Roughly 90% of the current bundled payment implementations, including Medicare’s Bundled Payment for Care Improvement (BPCI), rely on retrospective reconciliations of paid claims during the episode time window.
Here’s briefly how it works. A budget for all the services during the episode-the bundle-is negotiated between the provider and payer. Some of these budgets are adjusted for the severity of the patient, while others might not be, depending on negotiations and data availability. Once an episode is triggered, the providers engaged in the bundle are paid for all claims submitted.
At the end of the episode, the services paid are compared to the budgeted bundle and the two are reconciled. This ends with one owing the other the difference between budget and actual.
Continue that process for every bundle triggered during the contract year, and you settle at the end of each quarter or the year. It’s simple, but not scalable.
Fortunately new systems are coming online that fully automate those processes by adding a “bundler” on top of current claims systems. As such, payers that adopt these new systems can focus on contracting while the machines do all the payments and reconciliations.
Further, the new systems can allow payers to negotiate prospectively paid bundles and add many features to negotiated contracts such as stop losses, margins, etc., which can vary by provider. New systems are essential to a more aggressive shift away from basic fee for service and the payers that are committed to that shift have already made the investments and are expecting the systems to come online shortly.
Procedural episodes are comparatively simple because there can actually be more providers involved in the management of procedural episode than a condition episode. However, most payers believe that joint replacements and cardiac interventions are well suited for bundled payments.
It’s important to note that Medicare’s BPCI is hardly restricted to procedural episodes. In fact, many involved in that program expect the majority of the volume of episodes triggered to be conditions such as heart failure and pulmonary disease.
The facts are pretty clear that condition episodes consume a far greater portion of total costs than procedural episodes. Consider that the prevalence rate of diabetes in a commercially insured population is about 10%, while the rate for joint replacements is less than 1%. As such, private sector payers have started to shift to condition episodes. Common chronic care conditions are certainly at the top of that list, but other conditions such as pregnancies and the most prevalent cancers are also in queue.
Overall, as payers learn how to implement procedural episodes, they realize that condition episodes aren’t that different. They deal with the same considerations, namely finding a “quarterback,” defining the financial terms of the contract, and developing the reporting requirements for accompanying quality measures.
Once payers realized that implementing bundled payments did not require having an integrated provider system to which a single payment could be made, the door became wide open for varied provider configurations to form and accept the financial and management risks of bundles.
For example, there is one private sector payer that only contracts with orthopedists for joint replacement bundles. Those physicians are the quarterbacks of the episodes and will receive 100% of the upside or downside for each episode. The balance of providers is paid fee-for-service by the payer, and don't share in any of the upside or downside. The costs of their services are simply added to the overall costs of the episode. As a result, only one provider will have risk in this arrangement: the orthopedist.
Medicare has accepted “convener awardees” to take on the role of financial integrator. One example is Remedy Partners, a Connecticut-based organization that has developed a virtual network of providers involved in BPCI as well as data analytics and a technology platform for the program. The participating providers will share in the upside and downside with Remedy.
Other groups are also responding to this shift in payment, including anesthesiologists who want to be designated as quarterbacks for complex surgical episodes, oncologists and primary care providers teaming up on cancer episodes, and so on. The point is that only clinical integration-the sharing of clinical information between the participating providers-is more important than financial integration.
In other words, while integrated delivery systems can effectively participate in bundled payments, a payer does not need them to implement bundled payments.
Large employers have already started the process of linking plan member benefit design to bundled payments. For example Lowe’s, Walmart, Pepsi and others have designated certain “centers of excellence” with which they have negotiated a bundled payment for certain procedures. Plan members have either significantly reduced or zero copays if choose the designated providers. That’s important because it should help shift market share to those providers, rewarding them for taking on the financial risk associated with the bundle.
The recent reference pricing program launched by California Public Employees' Retirement System (CalPERS) also starts linking benefit design to bundles. In that instance, the provider was not at risk, but the market share shift was significant. The combination of reference pricing with bundled payments is the next step in tying member risk with provider risk, and some employers are exploring this innovation as possibly the best way to create real market competition.
The payment experiment is now in full operation. Thousands of bundled payments have already been made, and thousands more are on the way as Medicare’s BPCI launches, as states expand their original scope, and as payers move to scale. The introduction of more nimble and innovative provider configurations will create new opportunities for the health care system to demonstrate efficiencies, and payer claims systems are adapting to accommodate these changes.
The greatest potential to accelerate market transformation, however, is to link member plan design to bundled payments, allowing consumers to arbitrage with their money and to select providers that offer them the greatest value.
As these changes continue to shape the bundled payment market, the landscape in five years will be significantly different than it is today. Along the way there will be other lessons learned and midcourse corrections, and further innovations will emerge as the health care system continues to be transformed to deliver far greater value than today.
Francois de Brantes is the executive director of the Health Care Incentives Improvement Institute