Prospective vs. Retrospective. Will Bundled Payment Really Be.. Fee For Service

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1 Fee For Service Episode Based Payment: Are You Ready For Medicare s Next Wave of Provider Payment Reform? Payer Robert Mechanic, MBA The Estes Park Institute January 30, 2012 Hospital Surgeon Specialist Internist Post Acute Bundled Payment Shared Accountability Payer Hospital or Integrated Network Single payment to cover costs of episode of care (30, 60, 90 days) Group is responsible for all care within the episode Bundled Payment day look-forward 4 Prospective vs. Retrospective Hospital or Integrated Network Target budget for each episode All providers paid FFS Periodic CMS settlements Distribute surplus Reclaim deficit Health system can decide Whom to contract with How to distribute bonuses Will Bundled Payment Really Be.. 5 6

2 This NEW NEW Thing is Actually Old Could Bundled Payments Become the Next DRG System? CMS Heart Bypass Demonstration Geisinger Provencare Medicare ACE Demo CMS Innovation Center Bundled Payment Pilots Prometheus Payment IHA Commercial Bundled Pmt Project CA CMS National Payment Bundling Pilot 7 8 CMS Innovation Center: Bundled Payment Pilot More flexible than prior programs Four models Prospective and retrospective options Applicants define bundles Physician gain sharing allowed up to 50% of Medicare fee schedule CMS encourages groups to apply 9 10 Calculating Payments Under Medicare BP Pilot Historical Cost Per Episode 12,200 Update Factor * CMS Discount * * For illustration update = 3%/yr discount = 3% Target Price 13,320 Calculating Payments Under Medicare BP Pilot Historical Cost Per Episode 12,200 Update Factor * CMS Discount * * For illustration update = 3%/yr discount = 3% Target Price 13,320 BPLN Episode Definitions Risk Adjustment BPLN Episode Definitions Risk Adjustment Actual FFS Cost 12,

3 Calculating Payments Under Medicare BP Pilot Historical Cost Per Episode 12,200 BPLN Episode Definitions Risk Adjustment Update Factor * CMS Discount * * For illustration update = 3%/yr discount = 3% Target Price 13,320 Actual FFS Cost 12,900 Settlement 420 LOI and Research Request Nov 4, 2011 Feb 28, 2012 Expect Data Available Design Bundles Model Finances Engage Medical Staff April 30, 2012 Application Due Expected Start Date Jan 1, Model 1* Model 2* day look-forward Model 3* Model 4: Prospective Pmt* 30 day look-forward 17 18

4 The asterix* CMS will monitor and measure care provided during a post episode monitoring period to ensure that aggregate Medicare Part A and Part B spending for included beneficiaries does not increase. Aggregate expenditures for included beneficiaries during the episode and post episode monitoring period will be compared to a historical baseline payment trended forward which will include a risk threshold. If spending exceeds the risk threshold, the awardee must pay Medicare for the excess. Should you do this? 20 Projected Growth in Per Capita Medicare Spending above GDP Period Excess Rate of Spending Growth % % % % Source: Chernew et al., NEJM, October 6, 2011 based on CBO June 2011 budget outlook Why Episodes? Why Episodes? Allows providers to proceed incrementally Can (should) be based on clinical guidelines Patient focused Encourages (or requires) participation by specialists Incentives for improved efficiency and care coordination across settings New margin opportunity in a time of declining FFS reimbursement A chance to learn/prepare 23 24

5 Average Risk Adjusted Spending for Medicare Admission Plus 30 days Post Discharge Congestive Heart Failure Comparing Hospitals in the Low and High Resource Use Quartiles Service Low Average High Percent Dollars Total episode 7,757 9,278 11, % 3,262 Hospital 4,837 4,826 4, % (13) Physician % 38 1,102 1,986 2, % 1,863 Post-acute 842 1,378 2, % 1,199 Total Costs in Dollars Total costs per episode split between Typical and Complications 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 Other % 176 Note: Spending for each service is based on national Medicare standardized payment rates excluding spending for teaching and DSH and geographic payment adjustments for input price differences 25 Source: MedPAC, June 2008 Medicare Study Sample: Jan July Opportunities to Improve Margins Primary Reduce supply costs (e.g. implants) Reduce errors and complications Reduce post acute care costs Conditional (dependent on backfill) Reduce readmissions Reduce length of stay Increase throughput Impact of operating improvements on other business lines 27 Financial Results June 2009 December 2010 Medicare ACE Demonstration: Baptist Health System (San Antonio TX) Shared Savings to Volume 1,985 Patients Hospital Savings >4.3 Million Patients 646K Gainshare to Physicians 558K HAZEL Challenges 29 30

6 31 32 Revolution or Run Around Can the industry agree on standards? Can providers re engineer processes Clinical, Administrative, Social? Can we move from easy to hard episodes? Can new systems promote clinical improvement while limiting gaming? 33