Bundled payments have the potential to revamp our healthcare system and are currently receiving a tremendous amount of attention in the healthcare world and media. The Centers for Medicare and Medicaid (CMS) has shown strong interest and support of bundled payments because they have the potential to improve patient outcomes and lower costs, two important objectives considering CMS has rapidly depleting funds and an older population that is growing exponentially.
Joint surgery is one of the most common Medicare billed surgeries. Bundled Payment for Care Improvement (BPCI) and Comprehensive Care for Joint Replacement (CJR) are two CMS bundled payments programs that have the potential to cover over half of all Medicare patients that receive a total joint surgery — about 250,000 beneficiaries annually. The opportunities to improve population health and reduce costs have never been greater.
Bundled payment terminology is broad and frequently describes multiple care models and financial arrangements. By definition, a bundled payment links multiple provider payments into one care management and payment system during a specific episode of patient care during a defined period of time. But what’s included in these bundles? And more importantly, what’s in your bundle?
5 Questions You Need To Ask Yourself
- What is bundled?
- Who is in the bundle?
- What is the time frame of the bundle?
- How is the bundle managed?
- How is the bundle paid?
1. What is bundled?
The services covered by a single bundled payment are sometimes referred to as an “episode of care” and include all treatment related to a particular condition or procedure. There are already a variety of examples of episodes of care utilizing a bundled payment system, including total joint replacement for knee, hips and shoulder, spine fusion, sepsis, and pregnancy to name a few.
2. Who is in the bundle?
The organizations involved in the bundle are typically the payers of the bundle and any providers and/or facilities that provide care during an episode of care. The payer can be a private insurance company, employer, or government insurance such as Medicare or Medicaid. The providers and facilities can be comprised of hospitals, physicians, surgeons, anesthesiologists, hospitalists, primary care services, imaging such as MRI, therapy services, skilled nursing facilities, rehab facilities, home health services, and more.
3. What is the time frame of the bundle?
Each payer defines the time frame covered by the bundle, including the date the specified episode of care will begin and the date it will end. Bundled payments can include several time periods:
- Short: Day of surgery and 30 days of post-operative care, such as BPCI Model 4
- Medium: Three days preoperatively through 90 days following discharge, such as BPCI Model 2 and CJR
- Long: Prenatal care (up to nine months), delivery, and a six-week postpartum period
4. How is the bundle managed?
The bundle is managed by the payer as well as the providers who deliver services to patients within the bundle. For instance, physicians and case managers are integral components to managing patients in a bundled payment. Physicians are able to establish specific discharge plans for patients in order to decrease unnecessary utilization of post-acute care services. Additionally, case managers manage the bundle by assisting patients in navigating the continuum of care, ensuring patients following their discharge plan, and documenting all services the patient receives in the designated bundled payment.
5. How is the bundle paid?
Bundled payments come in all different shapes and sizes, but fall into three main categories:
a. Reference pricing bundles
b. Retrospective bundles
c. Prospective bundles
a. Reference Pricing Bundles
Reference pricing bundled payments are the least intrusive since there is no downside risk for providers. These bundles are based on knowing the cost of the services provided by different providers and linking the providers into a referral system, or network.
For example: An orthopedic episode of care includes a network of providers composed of an orthopedic physician, an imaging center (MRI), a freestanding ambulatory surgery center, and physical therapy. A network of providers offers an employer or payer a set bundle cost for an orthopedic episode of care. Between two provider networks, the bundled cost differential of the episode is often due to the pricing of MRIs, where some facilities charge over $2,000 and others only $500. The employer or payer may choose to go with the network of providers that offers the most cost savings in their bundled payment program.
b. Retrospective Bundles
Retrospective payment bundles are the most widespread bundled payment system primarily due to the abundance of participation in the BPCI initiative and the upcoming CJR model. Retrospective bundled payments set a predetermined target price per episode of care and assign the responsibility of the bundle to a sole provider, often referred to as the “Episode Initiator”. This arrangement is built upon a fee-for-service system and is a hybrid between singular and multiple payments.
A target price is established based on historical claims data of a specific episode of care derived from either the Episode Initiator’s historical cost or the historical costs of a particular region. After episodes have been completed, the payer compares the anticipated aggregate claims (target price times the number of cases) to the actual aggregate claims (total cost of all cases) to determine any cost savings. Additional adjustments to the target price can occur depending on the adjustment methodology.
This payment methodology is “retrospective” because providers receive their usual fee-for-service payments and after their total costs are assessed, which can be a year or more after the services were initially provided, providers can then receive an additional payment if cost savings were generated.
For example, for a total joint replacement episode:
Target price = $22,000 (calculated based on historical data)
Number of total joint replacement episodes in 1 year = 350
CMS expected cost = $7.7 million
CMS actual cost = $7.2 million
Since the Episode Initiator was able to reduce the utilization of services they were able to generate $500,000 of cost savings during that time period. Therefore, the Episode Initiator receives a reconciliation payment of $500,000 from CMS that can be distributed amongst participating providers. The reconciliation payment is the financial incentive for participating in bundled payments and successfully managing patient care.
c. Prospective Bundles
Prospective bundle payments are made in advance of care, or prospectively, rather than after care is delivered. An average cost per episode of care is determined based on historical data and/or regional costs and payment is delivered to providers when an episode is initiated, rather than waiting until the entire episode has been completed.
Adjustments to payments are made after the fact to account for outliers, excluded episodes, and other factors. It is believed that, after bundled payments are sufficiently tested through pilot programs and other trials, permanent programs will move to being prospective in nature rather than retrospective.
Are you prepared?
The tipping point for bundled payments is near. It is important to become informed about your options and assess your current market to identify your next steps. By preparing yourself for the shift from volume-based to value-based payments, you will be ready to make the most out of this significant transition in the U.S. healthcare landscape.
For more information or assistance in working with bundled payments and value-based care, visit SignatureCareManagement.com.