Four Strategies for Succeeding With Bundled Payments

As hospitals and health systems move toward a value-based business model, bundled arrangements have become, and likely will continue to be, a key area of focus. This episode-of-care arrangement is one of the key mechanisms by which the Centers for Medicare & Medicaid Services (CMS) is shifting payment for covered populations-55.5 million Medicare beneficiaries and 72.4 million Medicaid enrollees-to value-based arrangements.CMS's expectation is that bundled payments will spur providers to better coordinate care, improve quality, and lower cost because a single bundled payment for an episode of care holds the group of providers accountable for cost and patient outcomes (Center for Medicare & Medicaid Innovation, 2011; see box opposite). Where CMS goes, commercial payers typically follow, so the prevalence of bundled payment arrangements is likely to increase.Until 2016, CMS's bundled payment programs for providers were voluntary. The largest of these programs-the Bundled Payments for Care Improvement (BPCI) initiative-launched in 2011 and attracted more than 400 hospitals, 300 physician groups, and 700 skilled nursing facilities by October 2015 (Mechanic, 2016). Of the 48 episode types in the program, those involving major joint replacement; congestive heart failure; simple pneumonia and respiratory infections; and chronic obstructive pulmonary disease, bronchitis, and asthma attracted the most providers.CMS rolled out a new mandatory bundled program in 67 markets, which went into effect on April 1, 2016. The Comprehensive Care for Joint Replacement (CJR) model involves approximately 800 hospitals and covers nearly one-third of all hip and knee replacements for Medicare patients nationally (Beck, 2016).The CJR program incentivizes hospitals to discharge patients to lower-cost settings and directly to home whenever possible because hospitals are responsible for charges within 90 days of discharge. If costs are below the target rate set by CMS, hospitals keep the difference; conversely, if costs are above the target rate, hospitals pay the difference. CMS caps losses (and gains) at a percentage of the target price.Participating hospitals are at financial risk not only for index hospitalization services but also for payments to physicians and post-discharge providers (Bahl, 2016). Skilled nursing, inpatient rehabilitation, home health care, and hospital readmissions are likely to be the focus for spending reductions because these charges account for nearly 40% of hip and knee replacement spending (Seidman, 2016).The writing is on the wall. Hospital leaders must focus on bundled payments. Four strategies-obtain needed data, assess data thoroughly, understand what is in the bundle, and engage stakeholders-will be key to success.OBTAIN NEEDED DATAWhether working with a commercial payer or CMS, hospitals must obtain cost and quality data when assessing participation opportunities (e.g., selecting episodes of care based on the organization's current performance and ability to reduce costs and improve quality) and monitoring performance as the organization and affiliated providers deliver care and receive payments. Obtaining cost and quality data is not always simple or straightforward, and competency in analytics is essential,Hospitals may seek to partner with payers and self-insured employers, who typically are willing to share historical data. However, hospitals should validate the accuracy of the data and assess the likelihood of meeting performance benchmarks. In a recent blog post, Bahl (2016) describes the major challenge facing hospitals contemplating participation in the CJR program. Although CMS will provide hospitals with detailed historical claims data for patients from the index hospitalization through 90 days after discharge, the "details are provided only concurrently with implementation of the program, giving hospitals little time to organize, analyze, and use these data to identify opportunities and risks" (Bahl, 2016). …