DECEMBER 13, 2012

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

Lessons Learned Preparing for Medicare Bundled Payments
This recent New England Journal of Medicine (NEJM) article reports on studies by the Heller School for Social Policy and Management at Brandeis University in Waltham, MA. The authors worked with hospitals evaluating participation in the CMS Bundled Payment for Care Improvement initiative. Their work with these hospitals focused on episodes of inpatient care plus all related services for 90 days after discharge. Their findings included these: 1) the data show that Medicare typically spends as much or more in the 90 days after discharge as it spends for the initial hospitalization, 2) the data show wide variation in average post-acute care spending, and 3) the current design of Medicare's bundled-payment program poses financial risks for participating hospitals because the relatively small number of patients within each type of episode can lead to substantial year-to-year variation in the severity of illness in, and costs for, patients who require treatment. The authors conclude that "the success of the initiative will depend on whether it protects participating hospitals against losses resulting from both random and systematic variation in illness severity. Certain design features will make it much more attractive to hospitals, including risk adjustment, stop-loss protection for high-cost cases, an ability to exclude cases with high-cost primary diagnoses from episode definitions, and so-called risk corridors that allow hospitals to share both gains and losses as they acclimate to the program." (New England Journal of Medicine, November 15, 2012)

University to Pilot Medicare Bundled Payments for Heart Failure Patients
University Physicians, Inc., University of Colorado Hospital, and the University of Colorado School of Medicine, are working with the Center for Medicare and Medicaid Innovation (CMMI) on the development of a three-year congestive heart failure (CHF) bundled payment pilot scheduled to commence July 1, 2013. The bundle price will be pre-determined by CMS and the University of Colorado partners and will cover all episode related health care costs (some services are excluded) incurred for the patient during the initial hospital stay and 30 days post-discharge, rather than the single inpatient visit used in the CMS Bundled Payment for Care Improvement initiative. Elizabeth D. Kissick, Director, Health Plan Development at University Physicians, Inc., points out that the CHF bundle is not a "trim the fat" model used for joint replacement and other procedure-based bundles. She says managing costs for heart failure patients is more complicated because it takes a multi-pronged approach of patient risk stratification, physician engagement, adherence to guidelines, and patient empowerment. (Center for Improving Healthcare Value, December 5, 2012)

CMMI Unveils List of 48 'Episodes' for Bundled Payment Program
The CMS Center for Medicare and Medicaid Innovation (CMMI) has released its preliminary list of 48 episodes of care providers can select from for their participation in the Bundled Payments for Care Improvement (BPCI) initiative. These 48 episodes represent the more than 200 DRGs that account for 70% of Medicare spending. While the change has reportedly upset hospitals, it was done to create uniformity and reduce the administrative burden for the agency. It has been suggested that the change will improve the ability of CMMI to gather meaningful conclusions about the initiative. (Inside Health Policy, December 3, 2012)

GAO Report Says CMS Should Cut Bundled Rate because Dialysis Providers Saved on ESA Costs
The GAO released a report on December 10, 2012 advising that Medicare should have cut payments in 2011 by at least $500 million because providers saved as much through the lower use of erythropoiesis-stimulating agents. The bundled rate was based on ESRD drugs in use during 2007. CMS told the GAO they have no immediate plans to rebase the rate and that they lack the explicit statutory authority to do so. (Nephrology News & Issues, December 10, 2012)

Across All Cancer Types, Surveyed U.S. Oncologists Report that 69 Percent of Patients Will Receive Either Highly Emetogenic Chemotherapy or Moderately Emetogenic Chemotherapy
Recently surveyed U.S. oncologists estimate that 69 percent of their patients will receive either highly emetogenic chemotherapy or moderately emetogenic chemotherapy. Published guidelines do not recommend routine chemotherapy-induced nausea and vomiting (CINV) prophylaxis for patients receiving minimally emetogenic chemotherapy, yet 52 percent of surveyed oncologists and 64 percent of surveyed nurses/nurse practitioners (NPs) routinely treat this subgroup of patients. This report is from a new US Physicians & Payer Forum report entitled Chemotherapy-Induced Nausea and Vomiting: How Are Payers, Prescribers, and Oncology Nurses Shaping This Buoyant Market? produced by Decision Resources. The report finds that plans by Managed Care Organizations to develop bundled payment programs have increased dramatically. "Only 8 percent of surveyed MCO pharmacy directors currently include payment of CINV drugs into a bundled payment to providers", said Decision Resources Principal Director of Market Access Mary Fletcher-Louis. "But 72 percent of surveyed MCOs expect to begin such a program this year or within the next three years. Bundling of payments essentially removes the financial incentive for physicians to prescribe higher-margin drugs and the continued adoption of this model may boost uptake of less-expensive or more cost-effective drugs. (Decision Resources, November 2012)

Charting a New Course for Bundled Payment? More Medicine, New Service Lines on the Horizon
This Advisory Board analysis discusses the move from procedure bundles to medical bundles. Speaking about CMMI's release of 48 bundles they note that while many of the bundles relate to the more common cardiac, orthopedic and spinal procedures, "[f]ully half of the bundles cover medical conditions, which were not included in Medicare's earlier Acute Care Episode (ACE) Demonstration or in most of the commercial initiatives we are familiar with." The Advisory Board has surveyed some of its members and found that a majority of providers plan to offer medical bundles, typically for cardiology and pulmonology, as well as the more common surgical procedure bundles. Two charts from the survey are found below. (The Advisory Board Company, November 7, 2012)

6 Hurdles to Bundled Pricing
The authors advise anticipating these six hurdles when developing the infrastructure to offer a bundle price: 1) Making the case for bundled pricing, 2) Determining what services to bundle, 3) Defining the episode of care, 4) Building consensus on predictive care paths, 5) Developing a price, and 6) Managing variation. (Becker's Hospital Review, December 4, 2012)

CMS Bundled Payment Changes Untenable?
Deirdre Baggot, MBA, RN, of the Camden Group, says that moves by CMS such as the broader definition of related readmission to include all medical DRGs may prove too much for some providers. These changes present many downsides for providers including discount requirements, related readmissions, gainsharing, and beneficiary incentives. A positive change is the ability for providers to preview the financial impact before committing to participating in the program. CMS will collect information from January to June 2013 which will allow the applicant to review the financial results of the proposed bundles. "Some people think it will be easier to work with a commercial payer. I don't think it's easier. What's challenging there is that many payers aren't prepared to execute on this [payment model]. They have the data but they can't figure out how to get at it. And the commercial payers' readiness is so variable across the country," says Baggot. She believes bundling is an inevitable progression. "Don't jump into it with both feet, but don't do nothing either." (HealthLeaders Media, December 10, 2012)

Interview with Robert Mechanic on the Challenges and Potential Benefits of Medicare's new Bundled Payment Program

This interview is with Robert Mechanic, MBA, a senior fellow at the Heller School of Social Policy and Management at Brandeis University. He is interviewed by Stephen Morrissey, the Managing Editor of the New England Journal of Medicine.

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Redesigning Consumer Cost Sharing to Support Episode-of-Care Payment for Providers

James Robinson, PhD
Leonard D. Schaeffer Professor of Health Economics, Berkeley, CA

Brad Wolfsen, MBA
Safeway Health, Pleasanton, CA