MCOs must reinvent themselves due to bundled payment growth

As hospitals prepare for the mandated management of episodes of care, they will threaten the value proposition of most managed care plans.

If you are a commercial managed care plan leader or an executive for a self-insured employer, you may have initially thought that the Centers for Medicare & Medicaid Services (CMS) Comprehensive Care for Joint Replacement Model (CCJR) would have little impact on your plan or employees.

SreenivasanWith further consideration, you may have even celebrated that CCJR would benefit your members as a result of a “halo effect” as hospitals deliver higher quality, more cost-effective care under this model.

However, as hospitals prepare for the mandated management of episodes of care under CCJR (with other diagnoses likely to follow), they will focus on improving competencies that have traditionally been the responsibility of managed care plans-and by taking on these roles, will threaten the value proposition of most managed care plans today.

The impact of CMS’ mandated bundle on hospitals today

CMS proposed the CCJR on July 9, 2015, which would require hospital providers in 75 Metropolitan Statistical Areas (MSAs) to accept a bundled payment retrospective reimbursement model for major joint replacements for a five-year period.

McNerneyThe proposed mandate would assign one target price for a joint replacement episode. The episode would include all Part A and Part B services and start with pre-surgery diagnostics and the inpatient admission and extend through 90 days post-discharge.

With new incentives to deliver value (i.e., payments tied to quality and patient satisfaction) across an episode and an anticipated go-live date of January 1, 2016, hospitals are incentivized to quickly evaluate their current relationships and care delivery programs, and invest in the resources needed for program success.

These efforts include:

  • Engaging physicians and multidisciplinary care teams at the front-end of the process.

  • Evaluating clinical care protocols and identifying ways to minimize variation.

  • Collecting and analyzing spend data for acute and post-acute care and identifying cost savings opportunities (i.e., supplies, length-of-stay, appropriate use of post-acute care services by modality).

  • Identifying post-acute care partners and developing a strategy to manage patients across care settings.

  • Investing in care management resources, including nurse navigators for care coordination, call centers for patient support, decision support systems for actionable, timely data, and utilization management teams that work across the acute and post-acute settings.

Next: Managed care plans benefit from hospital responses ... only in the short term



As hospitals rethink and redesign their care delivery models and provider relationships in response to CCJR, non-Medicare patients, including your managed care members, will benefit through a “halo effect,” since hospitals cannot provide different standards of care for different patient populations.

Managed care members will likely experience well coordinated care, better outcomes at a lower cost, and will have a better chance of avoiding readmissions and complications at hospitals participating in CCJR.

Related:The risks and rewardsof medical loss ratio come to managed care

The most impactful change for managed care members and plans will stem from the hospital’s need to standardize its discharge planning and post-acute care utilization, and drive utilization into the most appropriate, cost-effective care settings during the episode.

Financial success with bundled payments incentivizes hospitals to redirect post-acute service delivery away from acute inpatient rehabilitation facilities to skilled nursing facilities (SNFs), SNFs to Home Health, and Home Health to outpatient visits.

As CCJR forces hospitals to take on more accountability in the emerging fee-for-value environment, it is apparent that the utilization management tactics deployed by managed care plans are better suited for what is now the shrinking fee-for-service market.

Provider incentives will increasingly overlap with managed care as this program grows geographically and includes more clinical episodes. Medicare Advantage plan members are excluded from the mandated bundles for this very reason.

Managed care plans should secure a network that includes surgeons leading bundled payment initiatives and post-acute providers that demonstrate quality outcomes, preferably owned by participating hospitals. Post-acute providers aligned with hospitals will share protocols, care delivery technology, and be held accountable for managing utilization.

So health plans are happy to get help in managing their patients ... right?


NEXT: Value proposition when the hospital competitor


The hospital is now a competitor. What’s our value proposition?

Hospitals will emerge as a new competitor to managed care plans as their multidisciplinary care teams (including physicians) manage utilization across entire episodes of care in the acute and post-acute care settings.

Further, their investment in care management tools will result in data and outcomes reporting becoming available throughout the organization in almost real-time, allowing providers to make decisions at the bedside that will result in higher quality, more cost-effective care.

Related:Hospitals get big payoff from higher physician engagement

If they haven’t already, it’s time for managed care leaders to pull out the white boards and draft their value proposition of the future. Strategies may include:

Plan design: If you can’t beat it, join the bundled payment market by building an offering that is tailored to the fee-for-value environment. A good place to start is through self-insured employer plans which can be made up of traditional HMO and PPO plans, combined with incentives toward a narrow network for selected bundled episodes with preferred hospital partners. PepsiCo already has a similar strategy in place, in which its employees nationwide receive care at Johns Hopkins for selected cardiac and orthopedic episodes.

Care Management Tools/Technology: As hospitals are looking to quickly adopt and implement tools and technology to manage utilization, it may be time to consider selling what was once intellectual property of the managed care plans as packaged services. This will transition the managed care plan’s role from gatekeeper to collaborative hospital partner.

Examples of such services include:

  • Decision support services;

  • Utilization management services;

  • Post-discharge placement services;

  • Care coordination nurses and nurse navigators;

  • Patient call center servicees;

  • Patient education; and

  • Wellness programs.

Re-branding/positioning: Managed care has traditionally been viewed as a gatekeeper and limiter of services through its pre-authorization/certification hurdles, denials, and administrative back-and-forth.

Although these are inherent characteristics, elevating new bundled products in your plan and the types of provider partnerships will serve your brand well.

Disruptive change in healthcare is no longer on the horizon; it is upon us through value based models such as the CCJR. Managed care plans that use the disruption as fuel to innovate through these strategies and others will be well served as valued based care is scaled.

Andy McNerney, MBA, is a senior consultant with The Camden Group and specializes in bundled payments, system and service line strategic planning and new business development for a variety of healthcare organizations.

Danielle Sreenivasan, MHA, is a senior manager with The Camden Group with more than 13 years of healthcare experience and specializes in strategic and operational service line business planning, facility planning, financial feasibility analyses, and medical staff planning and alignment.