How Bundled Payments Support the Move to Value-Based Models

Bundled payment models are moving from voluntary models into mandatory models. Early evidence suggests that, under episode-based incentives, clinicians and organizations can improve the value of care for certain episodes.

An episode-based, value-based payment model, bundled payments hold clinicians and organizations accountable for episode-specific quality and costs and provide financial incentives for those that maintain episode costs below predefined benchmarks. Increasingly, bundled payments represent a key component of the ongoing nationwide shift toward value-based care.

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

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.

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.

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.