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The Comprehensive Care for Joint Replacement payment model CMS announced proposes to hold hospitals accountable for the quality of care they deliver to Medicare fee-for-service beneficiaries for hip and knee replacements from surgery through recovery. The hip and knee bundle program would include quality measures for complications, readmissions and patient experience.

The program would begin Jan. 1 and run for five years. Episodes included in the bundle would begin with the admission to the hospital and end 90 days after discharge. The hospitals would bear financial risk for the procedure, the inpatient stay and all care related to the patient’s recovery.

The geographic areas chosen for the program range from large markets like New York City and Los Angeles to smaller ones like Flint, Mich., and Florence, S.C. In all, more than 800 hospitals would be subject to the rule. Critical-access hospitals would be excluded.

Depending on the hospital’s quality and cost performance during the episode, the hospital may receive an additional payment or be required to repay Medicare for a portion of the episode costs. As a result, hospitals would have an incentive to work with physicians, home health agencies, and nursing facilities to make sure beneficiaries get the coordinated care they need, with the goal of reducing avoidable hospitalizations and complications. Hospitals would receive tools – such as spending and utilization data and sharing of best practices – to improve the effectiveness of care coordination.

“Hospitals in 75 geographic locations will be required to test 90-day hip and knee bundled payments.”

These bundled payments for joint replacement surgeries would build upon successful demonstration programs already underway in Medicare. This model is also consistent with the private sector, where major employers and leading providers and care systems are moving towards bundled payments for orthopedic services.

Hip and knee replacements are some of the most common surgeries that Medicare beneficiaries receive. In 2013, there were more than 400,000 inpatient primary procedures, cost­ing Medicare more than $7 billion for hospitalization alone. While some incentives exist for hospitals to avoid post-surgery complications that can result in pain, readmissions to the hospital, or protracted rehabilitative care, the quality and cost of care for these hip and knee re­place­ment surgeries still vary greatly among providers.

For instance, the rate of complications like infections or implant failures after surgery can be more than three times higher at some facilities than others, in­creasing the chances that the patient may be readmitted to the hospital. And, the av­erage Medicare expenditure for surgery, hospitalization, and recovery ranges from $16,500 to $33,000 across geographic areas.

This model will incentivize providing patients with the right care the first time and finding better ways to help them recover successfully. It will reward pro­viders and doctors for helping patients get and stay healthy. And it’s what we hear that many doctors and providers want – to be able to give the best care pos­sible to their patients.

CMS estimates that the new bundled-payment test will cover about 25% of the hip and knee replacements that Medi­care pays for. The program would put about $2.2 billion in Medicare spending in the new bundles in 2016, and that figure would grow to $2.7 billion in 2020. The agency expects the model to yield $153 million in net savings during its five-year run.

It’s a good time to remind readers about the Medicare Acute Care Episode Demonstration (ACE Demonstration). This was an earlier test of a global payment for episode of care to cover Part A and Part B services including physician services. Medicare did save $319 per ep­isode during a three-year program with the largest savings from orthopedics.

Today, published results for the voluntary Bundled Payments for Care Im­provement under the Affordable Care Act are very limited. CMS has determined that certain kinds of hospitals aren’t sign­ing-up. The approach of the new program, CMS said would capture hospitals with a variety of utilization patterns, roles with­in their local markets, access to capital and other factors.

Let’s take a look at three ways bundled payments impact stakeholders across the continuum.

1. Supporting the Framework From Volume to Value

If you take a look at The Payment Tax­onomy Framework below, providers are firmly headed into Category 3: Al­ter­na­tive Payment Models

 Payment Taxonomy Framework

2. Preferred Provider Networks Evolve

Bundled payments are just not about a hospital penalty. It’s a game changer. It’s the first step toward at-risk accountability across the continuum. Hospitals are tak­ing on all financial risk for the surgery, in­patient stay and care following discharge. It prompts hospitals and ACOs to choose quality partners and develop preferred pro­vider networks.

Supporting the choice of a preferred provider network are star ratings. Home health agencies, rehabilitation centers or skilled nursing facilities with a 1-2 star ratings could spell trouble in the future.

Let’s take a look at data more closely for home health agencies.

There was a wide variation in scoring among types of providers, a Kaiser Health News (KHN) analysis found. Visiting nurse associations and agencies with re­ligious affiliations tended to get the most stars. Home health agencies run out of skilled nursing homes and agencies run or paid for by local governments tended to perform poorly.

A third or more of home health agencies that Medicare rated received four or more stars in Alabama, California, Flor­ida, Maryland, New Jersey, Penn­syl­va­nia, Rhode Island, South Dakota and Utah, the KHN analysis found. The high­est proportion of one or two star agencies were in Alaska, Arkansas, Minne­so­ta, Ohio, Oregon, Texas, Wyoming, and the District of Columbia. In those places, four out of 10 agencies or more received less than three stars.

Agency Ratings by Stars

3. Step Toward Data Analytics for Discharge Planning

In 2008 across all MS-DRGs, 38.7 percent of beneficiaries were discharged to a post-acute care (PAC) setting. Exhibit 1 includes the top five MS-DRGs by volume of discharges to PAC. The top five by volume of discharges to PAC in­cludes a mix of medical and rehabilitation MS-DRGs. In 2008, the top 10 MS-DRG for acute Hospital-initiated Episodes for Beneficiaries Discharged to Post-Acute Care included MS-DRG 470 – Major joint replacement or reattachment of low­er extremity without MCC followed closely by MS-DRG 481 – Hip and femur procedures except major joint with CC.

Bundled Payments Exhibit 1

Bundled Payments Exhibit 2

8 Ways Hospitals Develop Bundled Payment Programs

1. Define episodes of care. An episode of care needs a triggering event, such as an inpatient admission, and a clear endpoint, such as discharge from the hospital. IT can alaso have a timeframe, such as 30, 60 or 90 days from a hospital stay.

2. Examine the distribution of costs across services. Understanding where costs are concentrated allows a hospital to identify cost reduction opportunities and where partnerships with other providers might be most effective.

3. Identify the sources of variation in care. First, hospitals can examine the level and source of variation in the cost per case. Next, they can pinpoint where variation occurs. One way of identifying opportunities to reduce costs is to look at what percentage of variation in cost is due to each service type.

4. Design pathways of care. Patient pathways tend to involve more than one setting, and current pathways may be “unnecessarily complex. Hospitals need to understand how many providers are involved in episodes of care so better assess how many provider partnerships are necessary for an effective bundled payment stream.

5. Assess the performance of post-acute care providers. Once hospitals determine where mostof their patients receive post-acute care, they should examine those providers’ performance to determine which would make for most effective partners. In addition to looking at length of stay, cost and quality indicators for the services provided by the facility, closely examine the readmission rate,” as these rates are key determinants for episode-of-care costs.

6. Examine physician practice patterns to identify potential savings. Any broad differences in physicians’ practice patterns may indicate a need to implement standard care practices for pre-hospital services. Areas to examine include use of supplies, drugs and devices, use of intensive care, length of stay, discharge destination, follow-up care, readmissions and complications rates.

7. Assess levels and types of risk the hospital is willing to take on. Hospitals should also consider potential outliers, and how the presence or absence of a high-cost case might affect the average cost of the bundle. They’ll also want to protect themselves from insurance risk by ensuring payment rates are risk-adjusted, according to the brief.

8. Develop a bundle price. An organization’s bid price for a bundle will be based on historical patterns of cost across the continuum for selected conditions, how much it can lower that cost and an assessment of where it sits compared with other competing hospitals. Hospitals should also incorporate clinical expertise in their pricing process, to determine whether possible changes in treatment could affect target pricing.

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March/April 2019 Remington Report
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Strategic Planning
In Pursuit of a Predictable Future

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