SEPTEMBER 14, 2012

Welcome to the Bundled Payment Update eNewsletter
Editor: Philip L. Ronning
This issue is sponsored by Bundled Payment Summit

Bundled Payment Claims Analytics
Accurate actuarial models are critical to success in bundled payment contracting. Tools and methods to determine baseline costs and to identify treatment pattern variations, readmission rates, use of post-discharge services, etc. are needed to build the confidence necessary to gain the support of all stakeholders. Costs must be analyzed by admission type, which will allow organizing claims into time period categories for the inpatient stay, 30 days post discharge, etc. (Milliman MedInsight, August 12, 2012)

Bundled Payment: Effects on Health Care Spending and Quality Closing the Quality Gap: Revisiting the State of the Science
The Agency for Healthcare Research and Quality (AHRQ) has issued its final report on bundling as part of its Closing the Quality Gap: Revisiting the State of the Science series. Entitled "Bundled Payment: Effects on Health Care Spending and Quality," the 155-page report endeavors to provide an understanding of the current evidence about the effects of bundled payment on healthcare spending and quality as well as developing key design features of bundled payment programs. The review addresses three questions, 1) what does the evidence show are the effects of bundled payment, 2) identify any important design features, and 3) point out any effects of context differences. The model for the analysis is graphically displayed below:

This Report is an expansion of AHQR's previous analysis which can be found at http://effectivehealthcare.ahrq.gov/ehc/products/324/716/Closing-Quality-
. An executive summary of the Final Report can be found at http://effectivehealthcare.ahrq.gov/ehc/products/324/1234

Medicare Kidney Spending Reaches Crucial Moment
Kidney dialysis became the largest cost for the Medicare program in 1972 after dialysis treatments were made available to everyone in the country through Medicare's ESRD (Ends Stage Renal Disease) program. After years of unsuccessful efforts to reduce cost and lapses in quality, policymakers, provider and patients are anxious to see if bundled payments and pay-for-performance will reduce costs and improve quality. As of last year Medicare implemented bundled payment for dialysis, drugs and testing for an amount averaging $230 per session. Provider payment penalties of up to 2.0% were also implemented for patients whose hemoglobin and urea levels did not meet the standards. See the Health Affairs article referenced in this story, "Medicare's Payment Strategy for End-Stage Renal Disease now Embraces Bundled Payment and Pay-For-Performance to Cut Costs," at http://content.healthaffairs.org/content/31/9/2051.abstract?sid=46b64691-5f23-4250-8fca-580e28635f26; the abstract is free but the article requires a subscription or payment of a fee. (Science Codex, September 4, 2012)

The Lessons of Medicare's Prospective Payment System Show that the Bundled Payment Program Faces Challenges
In this Health Affairs article Stuart Altman, PhD, an economist and the Sol C. Chaikin Professor of National Health Policy at the Heller School for Social Policy and Management, Brandeis University, in Waltham, Massachusetts, compares Medicare's implementation of the prospective payment system beginning in 1983 with the current implementation of bundled payments. Altman provides a detailed analysis of how hospitals responded to new incentives and applies the lessons learned to the current situation. Among his conclusions is the recognition that private payers must evolve their incentives in the same way as Medicare for providers to receive consistent signals. The abstract is free but the article requires a subscription or payment of a fee. (Health Affairs, September 2012)

Bundled Payment Model Was Tough Sell
This story recounts how difficult it was for the Connecticut Joint Replacement Institute (CJRI) to find a payer to agree to a bundled payment contract. CJRI established its bundled payment product (called the Step Ahead Plan) for hip and knee replacements. It wasn't until a few months ago that their first payer, ConnectiCare of Famington, CT, agreed to the deal; they have now performed more than 20 cases under the Plan. Steven Schutzer, MD, the Institute's co-director, said that it took "more than a year to figure it out." Under this arrangement St. Francis Hospital serves as the program's administrator, receives the payments, and disperses the funds to other providers. The Step Ahead Plan does not yet absorb significant cost overruns such as readmissions, which are reimbursed on a simple fee schedule. Plans are in the works to expand the program to post-acute providers. (Harford Business.com, September 10, 2102)

Bundled Payments: A Bundle of Questions
This blog post from Theo Koury, MD, an emergency physician in Walnut Creek, CA, poses valuable questions about the bundling process and presents important insights regarding the role of the emergency room in the definition of an "episode of care." Because the emergency room is a significant source of expense and therefore a financial risk, it is also a key lever to be considered in both managing bundled payments and curtailing readmissions. (The Acute Care Continuum, August 31, 2012)

The Arkansas Innovation
This New York Times opinion piece by Ezekiel Emmanuel, PhD, is a good read on the success Arkansas is realizing thus far with episode-based or bundled payments. Arkansas' Medicaid program and the State's two largest payers (Blue Cross Blue Shield and QualChoice) have agreed to participate in the bundled payment program. The Arkansas program revolves around payers identifying a "quarterback," as Andrew Allison, the state's Medicaid director put it, for each case in which patient undergoes a procedure for a single medical condition. The quarterback, either a physician or a hospital depending on the condition, will receive the bundled payment and be responsible for managing cost and quality. The quarterbacks will receive quarterly reports on their performance, which will determine their final compensation. "In three to five years," John M. Selig, the head of Arkansas's Department of Human Services, said, "we aspire to have 90 to 95 percent of all our medical expenditures off fee-for-service." (New York Times Opinion Page, September 5, 2012)

Are ACAs and Bundled Payments the New New Things? What Happened to the Old New Things?

Stuart Altman, PhD, speaks on payment reform in this informative video.

(click image above for video)

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Leading through Innovation and Collaboration

Carolyn Clancy, MD
Director, Agency for Healthcare Research and Quality (AHRQ), Rockville, MD