Bundled payments are making waves throughout the hospital and healthcare industry for several reasons. Sure, they are innovative, collaborative and require new methods of strategic planning. However, perhaps the biggest reason executives are paying attention to bundled payments is because, simply put, the burden for distributing less money from reimbursement is falling to providers. Hospitals, physicians and other healthcare participants will be paid through a variety of models that include lump sums for multiple providers over an episode of care instead of being paid separately for each service rendered. This is supposed to facilitate better coordination of care and reduce cost that may offer providers the opportunity to share in savings produced by efficiency and improved outcomes.
"The important thing about complying with bundled payments is the testing of innovative payment and service delivery models that are intended to reduce spending. This 'testing' is a fairly significant change in the way providers are reimbursed…and it will cut into payments, too," says John Morrow, executive vice president of healthcare business data intelligence firm iVantage Health Analytics. "There are a variety of initiatives in the industry: value-based purchasing for higher patient satisfaction, wellness programs for care coordination, and disease management for improved patient-centered care, but with bundled payments, it is by design an initiative to shift the responsibility and to reduce costs."
Bundled payments, in theory, seem somewhat simple. CMS or other payors pay a hospital a fixed reimbursement on a particular diagnosis-related group episode, and then the hospital, physicians and other parties provide that care. If the cost of care is less than the bundled payment, everyone gets to share in the savings, and if the cost of care is more than the bundled payment, providers lose money.
Hud Connery, president of iVantage Health Analytics, is a former hospital administrator and "veteran" of the capitation days in the 1990s. He founded Nashville, Tenn.-based Essent Healthcare but now focuses his energy, like Mr. Morrow, on how to help hospitals survive and even thrive in the new era of healthcare reform initiatives. Both say the appropriate, organized and methodical use of data analytics can give hospitals the edge for a successful bundled payment initiative.
Mr. Connery says hospitals must understand three key concepts about bundled payments, and the three concepts all revolve around initial data gathering:
• What is the size of the market for my particular service? If a hospital wants to commit to bundled payments on orthopedics, executives must know the specific demand and growth for volumes (e.g., hip replacement procedures, knee replacement procedures, etc.) and what the existing provider service mix need is in the service area.
• What is the clinical variability in that service? Physician variability and physician performance drive some of the costs associated with service lines, and hospitals must be able to associate the raw clinical data to see which physicians stray from the targets. "For example, cancer patients have extraordinarily wide ranges of cost variation for the same diagnosis depending on whether a particular surgery or chemotherapy was successful," Mr. Connery says.
"And how are you going to deal with the 'uh-ohs'?" Mr. Connery adds. "What if there are costs that are three, four or five standard deviations from which you modeled the bundled payment? You're going to have some cases like that, and you have to know how you are going to handle outlier cases and who shares in that risk."
• What are my own costs? Being able to handle those outlier cases stems from how well the hospital executives know their own productivity and efficiency. Hospitals need to know how much it costs to provide care in their targeted service lines and how post discharge care contributes to the episode. There are several fundamental cost metrics hospitals should know, including at a minimum their Medicare break-even point for all service lines, prior to negotiating bundles with any payer.
1. Understand your market. Mr. Connery reiterated that data are only insightful if hospitals know and comprehend the demand, growth and competitors of services beforehand.
2. Figure out who all of the players are. Bundled payments are not just about hospitals and physicians. Skilled nursing facilities, rehabilitation, psychiatric, ambulatory surgery centers, home health agencies and others all matter within the episode of patient care, and hospitals have to know how they fit into the maze of the market map.
3. Plan for the onslaught of the new insurance exchange customers. Although the effects of the health insurance exchanges under the Patient Protection and Affordable Care Act will not be realized until several years from now, hospitals have to utilize predictive data to see if there could be pent-up demand — and if that could help or hinder a marginal bundled payment strategy.
4. Assemble the longitudinal costs now. Mr. Morrow says patients with co-morbidities are the drivers of excess costs and variability. Hospitals need to factor in this patient population because these patients are integral to whether a hospital makes or loses money on certain service lines.
5. Perform clinical and functional benchmarking. Bundled payments are still in their infancy, so hospitals need to know what they do well and what they should do less of to maximize their financial risk.
6. Push to integrate data to monitor progress on key performance indicators. Mr. Morrow says all too often, data are placed in silos. Patient experience data are put in one bin, operational efficiency statistics into another, and so on. Integrating information, through dashboards, visualization technology such as GIS and other performance tools will organize the key data and into intelligible and actionable plans.
7. Integrate your findings to build a scorecard for the community. Hospitals that disseminate information on how well they treat their patient populations could give positive exposure and could help with employers/payors that move to global payments down the line. "It is not only about costs," Mr. Morrow says. "It is about the sustainable value that providers bring to their communities."
8. Seek payors as partners. "You will need payor data, and much more data to be better informed," Mr. Morrow says. In addition to holding the key to the data needed to inform the pricing of bundles and the risk associated with them, developing bundled payments is pointless unless a payor agrees to reimburse using them. CMS has a formal program in place to test bundled payments, and many private payors are also open to such models. Often, a health system can make a payor receptive by demonstrating just how much bundled payments can save.
9. Find a business intelligence analytics partner. Creating an alliance with others to manage service line data and make data more comprehensible has never been more important for healthcare executives. Making these important decisions on service lines and Medicare reimbursements that are grounded in better data is essential because the U.S. healthcare system is beginning to ask "everyone to change how the game is played, and that's hard," Mr. Connery says.
"What continues to resonate with us is that [hospital executives] are inundated with requirements to monitor and manage a whole portfolio of performance metrics," Mr. Morrow adds. "Their frustration is they can't manage all of these different performance metrics in a disaggregated form. Our purpose is to pull that disaggregated data and put it into forms for people to make better business decisions — and that will drive success in the new healthcare."
"The important thing about complying with bundled payments is the testing of innovative payment and service delivery models that are intended to reduce spending. This 'testing' is a fairly significant change in the way providers are reimbursed…and it will cut into payments, too," says John Morrow, executive vice president of healthcare business data intelligence firm iVantage Health Analytics. "There are a variety of initiatives in the industry: value-based purchasing for higher patient satisfaction, wellness programs for care coordination, and disease management for improved patient-centered care, but with bundled payments, it is by design an initiative to shift the responsibility and to reduce costs."
Bundled payments, in theory, seem somewhat simple. CMS or other payors pay a hospital a fixed reimbursement on a particular diagnosis-related group episode, and then the hospital, physicians and other parties provide that care. If the cost of care is less than the bundled payment, everyone gets to share in the savings, and if the cost of care is more than the bundled payment, providers lose money.
Hud Connery, president of iVantage Health Analytics, is a former hospital administrator and "veteran" of the capitation days in the 1990s. He founded Nashville, Tenn.-based Essent Healthcare but now focuses his energy, like Mr. Morrow, on how to help hospitals survive and even thrive in the new era of healthcare reform initiatives. Both say the appropriate, organized and methodical use of data analytics can give hospitals the edge for a successful bundled payment initiative.
Bundled payments: where to begin?
When it comes to bundled payments, hospitals may not know where to begin. Today, hospitals have more access to healthcare data and benchmarking statistics than ever before, but for many executives, it may feel like they are drowning in their own information. "The challenge is that no hospital executive has all the information needed to know where all of costs reside, how episodes of care are put together across all relevant service lines, and whether or not those episodes of care are performing within existing best practice benchmarks," Mr. Morrow says.Mr. Connery says hospitals must understand three key concepts about bundled payments, and the three concepts all revolve around initial data gathering:
• What is the size of the market for my particular service? If a hospital wants to commit to bundled payments on orthopedics, executives must know the specific demand and growth for volumes (e.g., hip replacement procedures, knee replacement procedures, etc.) and what the existing provider service mix need is in the service area.
• What is the clinical variability in that service? Physician variability and physician performance drive some of the costs associated with service lines, and hospitals must be able to associate the raw clinical data to see which physicians stray from the targets. "For example, cancer patients have extraordinarily wide ranges of cost variation for the same diagnosis depending on whether a particular surgery or chemotherapy was successful," Mr. Connery says.
"And how are you going to deal with the 'uh-ohs'?" Mr. Connery adds. "What if there are costs that are three, four or five standard deviations from which you modeled the bundled payment? You're going to have some cases like that, and you have to know how you are going to handle outlier cases and who shares in that risk."
• What are my own costs? Being able to handle those outlier cases stems from how well the hospital executives know their own productivity and efficiency. Hospitals need to know how much it costs to provide care in their targeted service lines and how post discharge care contributes to the episode. There are several fundamental cost metrics hospitals should know, including at a minimum their Medicare break-even point for all service lines, prior to negotiating bundles with any payer.
9 key strategies for better data analytics and bundled payments
With those fundamental concepts in mind, Mr. Connery and Mr. Morrow believe there are nine strategies that will ultimately help a hospital with its own bundled payment initiative, and all of these strategies use better data and analytics as the cornerstone.1. Understand your market. Mr. Connery reiterated that data are only insightful if hospitals know and comprehend the demand, growth and competitors of services beforehand.
2. Figure out who all of the players are. Bundled payments are not just about hospitals and physicians. Skilled nursing facilities, rehabilitation, psychiatric, ambulatory surgery centers, home health agencies and others all matter within the episode of patient care, and hospitals have to know how they fit into the maze of the market map.
3. Plan for the onslaught of the new insurance exchange customers. Although the effects of the health insurance exchanges under the Patient Protection and Affordable Care Act will not be realized until several years from now, hospitals have to utilize predictive data to see if there could be pent-up demand — and if that could help or hinder a marginal bundled payment strategy.
4. Assemble the longitudinal costs now. Mr. Morrow says patients with co-morbidities are the drivers of excess costs and variability. Hospitals need to factor in this patient population because these patients are integral to whether a hospital makes or loses money on certain service lines.
5. Perform clinical and functional benchmarking. Bundled payments are still in their infancy, so hospitals need to know what they do well and what they should do less of to maximize their financial risk.
6. Push to integrate data to monitor progress on key performance indicators. Mr. Morrow says all too often, data are placed in silos. Patient experience data are put in one bin, operational efficiency statistics into another, and so on. Integrating information, through dashboards, visualization technology such as GIS and other performance tools will organize the key data and into intelligible and actionable plans.
7. Integrate your findings to build a scorecard for the community. Hospitals that disseminate information on how well they treat their patient populations could give positive exposure and could help with employers/payors that move to global payments down the line. "It is not only about costs," Mr. Morrow says. "It is about the sustainable value that providers bring to their communities."
8. Seek payors as partners. "You will need payor data, and much more data to be better informed," Mr. Morrow says. In addition to holding the key to the data needed to inform the pricing of bundles and the risk associated with them, developing bundled payments is pointless unless a payor agrees to reimburse using them. CMS has a formal program in place to test bundled payments, and many private payors are also open to such models. Often, a health system can make a payor receptive by demonstrating just how much bundled payments can save.
9. Find a business intelligence analytics partner. Creating an alliance with others to manage service line data and make data more comprehensible has never been more important for healthcare executives. Making these important decisions on service lines and Medicare reimbursements that are grounded in better data is essential because the U.S. healthcare system is beginning to ask "everyone to change how the game is played, and that's hard," Mr. Connery says.
"What continues to resonate with us is that [hospital executives] are inundated with requirements to monitor and manage a whole portfolio of performance metrics," Mr. Morrow adds. "Their frustration is they can't manage all of these different performance metrics in a disaggregated form. Our purpose is to pull that disaggregated data and put it into forms for people to make better business decisions — and that will drive success in the new healthcare."
More Articles on Bundled Payments:
2 Major Lessons From CMS' Bundled Payment ACE Demonstration
7 Strategies to Help Hospitals Break Even on Medicare
9 Best Practices for Bundled Payment Success