implementing bundled payments: a deeper dive

Steven F. Schutzer, MDMedical Director, Connecticut Joint

Replacement InstitutePresident, Connecticut Joint Replacment

Surgeons, LLC

Steven F. Schutzer, MDDisclosures

• Medical Director, CT Joint Replacement Institute

• President, CT Joint Replacement Surgeons, LLC

• Investor, Renovis Surgical Technologies

• Unpaid Consultant, Renovis Surgical Technologies

• Editorial staff, J. Arthroplasty

• Principal, Novel Healthcare Solutions, LLC

The entrepreneurial spirit of the

independent private practice surgeon,

working at an arms length relationship

with a hospital partner, can more rapidly

and effectively create sustainable

healthcare value than other contemporary

alignment models.

Bias

“He who is not courageous enough to take risk, will accomplish nothing in life.”

Muhammad Ali

Adapted from NEJM 361:16 8/9/09 Bohmer and Lee

“An important transition has begun in payment for health

care delivery in the US: organizations that have long been

paid for transactions, such as visits or procedures are

beginning to be paid for producing outcomes for populations.”

Traditional healthcare contracting

1. Cost shifting

2. Bargaining clout

3. Restricting choice/access

4. Dispute resolution via Court System (tort)

“Zero Sum Competition”

Traditional healthcare contracting

1. Cost shifting

2. Bargaining clout

3. Restricting choice/access

4. Dispute resolution via Court System (tort)

“Zero Sum Competition”

Provider financial success = Patient success

Professor Porter:“Create the right kind of competition”

“Positive Sum Competition”

Based on creation of healthcare value and marketcompetition aligned with outcomes/cost for a specific medical condition.

How can you achieve healthcare value?

1. Integrated Practice Units

2. Integrated delivery networks

3. Scale it up

4. IT platforms

5. Measure outcomes and cost

6. Manage risk

7. Bundled Payments

What is a “bundled payment”

“single package price for a comprehensive and specific set of healthcare services that provides a positive margin for services delivered to a patient by multiple providers over a defined period of time (episode)”

Bundled Payment: why is CMS interested in this option?

“The enemy is fragmentation. We just don't seem to form the coalitions (read: alignments), nor the communities we need to make progress”.

Bundled Payments:the hypothesis

Create financial motivation to collaborate/integrate/align and to implement effective care redesign strategies:

1. coordinate patient care

2. reduce variability

3. improve operational efficiencies

4. reduce low volume services

2 key re-alignments necessary for sustainable healthcare value

1. Providers, Payers…and Patients

2. unit of reimbursement with the unit of healthcare value delivered to the patient

Bundled Payments…the most effective strategy?

What is the evidence that Bundling works in healthcare?

1. Medicare 5 year CABG Demonstration

2. 2009 NEJM article

3. Prometheus models/pilots

4. Provencare experience

5. Medicare ACE Demonstration project

6. CJRI data

Medicare ACE demonstration for Orthopedic Surgery

• 5 Hospitals, In-patient costs (THA and TKA) combined Part A & B

• Pilot began 2009• Surgeon incentives (reimbursement up to

125% of Medicare fee) • Patient incentives:

“Medicare will share 50 percent of the savings it gains under the demonstration with the Medicare beneficiary up to a maximum of the annual Part B premium, currently $1,259”.

Medicare ACE demonstration for Orthopedic Surgery

1. Closer ties with surgeons (changed behavior)

2. Significant investment necessary (2.5 FTE)

3. Profits arise from spillover benefits

4. Savings from device cost reductions

5. Substantial quality benefits

Ardent Health

ABC White paper, Jan. 2012

Physician/Hospital alignment strategies

1. Co-management modelsa. True “Co-management” modelsb. Consultant Agreement without gain sharing c. Consultant Agreement plus gain sharing

2. Bundled Payment modelsa. Pure gain sharingb. Consultant Agreement without gain sharingc. Consultant Agreement plus gain sharing

3. Employment models a. Performance bonusb. Gain sharing

Provider alignment strategies:Bundled payment

Under BP contracts (without gain sharing) alignment is achieved by tying Physician reimbursement for services with compliance with consensus based best practices/EBM protocols.

Connecticut Joint Replacement Surgeons, LLCincorporated November, 2006

• 10 “community” Arthroplasty surgeons from 5 different private orthopedic practices

• Shared vision…create a world class Institute for Joint Replacement surgery• Commitment to “standardization”• Commitment to “data driven” decision

making

CJRS, LLCincorporated November, 2006

5 Core principles of our MOU:1. Surgeon management2. Dedicated multidisciplinary staff3. Separate line of business4. “hospital within a hospital”5. Research investment (4 FTEs and Registry)

CJRS, LLCincorporated November, 2006

• Consulting Services Agreement signed July 27, 2007

• CJRS, LLC manages CJRI (an Arthroplasty service line)

• Our work has been valued by an outside source• The LLC receives a monthly stipend for it’s work• No gain sharing• First case done July 31, 2007

The Bundled Payment program at CJRI: “Step Ahead” plan

Three “Parties” (Anesthesia, Saint Francis, CJRS) started negotiations in July, 2009.

Our “Basket of Care” Agreement was signed in August, 2010.

Implementing a Bundled Payment program: essential elements

1. CEO/Hospital Administration

2. Physicians Leaders/Physicians

3. Trust and transparency

4. Savvy Legal Counsel

5. Robust quality and cost monitoring systems…clean data

6. Mature service line

7. Adequate case volume

8 Steps to Development of a Bundled Payment program

1. Build the dedicated team

2. Define the episode

3. Define performance measures (Cost and Quality)

4. Develop the Care Models

5. Cost reduction opportunities

6. Price the Bundle

7. Gain-sharing or other methods of compensation

8. Develop Continuous Process Improvements

9. Align with Post-acute providers

1. Build the dedicated team

For the effort to succeed, there needs to be a “cultural transformation” focused on creation of a new healthcare delivery model

Building the Dedicated Team

Overcoming “Institutional Memory”

1. Build the dedicated team

Surgeon Co-Medical DirectorsAnesthesiologistsExecutive DirectorProgram DirectorHospital COOHospital CFOHospital CNOLegal Representation

2. Define the Episode

Detailed definitions:

1. which Parties involved2. duties of each Party3. define the “bundle” 4. define the time frame (EOC)

2. Define the Episode

5. warranty (define covered service and time frame)

6. cost over runs

7. best practices and EBM

2. Define the EpisodeDuties of each Party: Hospital

Provide the infrastructure necessary to operate the program and service line including facilities, staff, support services, marketing, data resources, Registry…and billing and collection for all 3 Parties.

2. Define the EpisodeDuties of each Party: Surgeon

1. Appropriateness for surgery2. Perform surgery3. Routine post-op in-patient care4. Adhere to any and all guidelines and

protocols5. Coordinate daily patient care6. Strategic leadership in development and

implementation of the Program and best practices

2. Define the EpisodeDuties of each Party: Anesthesia

1. pre-op patient review to determineeligibility and risk stratification (“none or minimal systemic disease”)

2. Customary Anesthesia services

3. Adhere to best practice and protocols

4. Post-op pain management

The “Step Ahead” program at CJRI is offered to patients less than 70 years of age who are candidates for standard primary THA or TKA with either none or minimal systemic disease (would also exclude patients with certain conditions)

2. Define the Episodeexpenses and excess costs

• Cash reserves:

(a) Operating reserve

(b) Claim reserve

• Cost over runs: shared and not shared

• Claims: Low claim, High claim, Insured claim

• Stop Loss coverage

2. Define the Episodeexpenses and excess costs

• Cash reserves:

(a) Operating reserve

(b) Claim reserve

• Cost over runs: shared and not shared

• Claims: Low claim, High claim, Insured claim

• Stop Loss coverage

Excess costs: not shared

“Excess costs resulting from unwarranted or deliberate deviation from the approved protocols.”

Excess costs: shared

a. Low claim-cost over runs under $5K come off the top

b. High claim-cost over runs in excess of $5K (but less than $10K) are deducted from the claim reserve

c. Insured claim-cost over runs in excess of $10K

“Step Ahead” Stop Loss policy

Provided by our Med Malpractice carrier

$250,000 annual contract limit

$10K deductible per claim

Shared excess costs greater than $10K become an “Insured claim”

2. Define the EpisodePatient Warranty

Negotiable terms

Re-admissions for surgical site complications:

wound complications (hematomas,

infections, cellulitis, dehiscence)

peri-prosthetic fractures

instability

3. Define Performance Measures:

Cost

Outcomes and Quality

Patient Reported Outcomes

Achieving the Triple Aim

PopulationHealth

Per CapitaCost

41

Patient care experience

3. Define Performance Measures:Cost

Hospital cost/case

Surgeon’s cost for services

Anesthesia cost for services

Cost/case for re-admissions

3. Define Performance Measures:Outcomes and Quality

Re-admissions (30, 60 90 day)

Complications (30, 60, 90 day)

HCAHPS scores

SCIP measures

Press Ganey scores

LOS

Post-acute discharge (home vs ECF)

Data Sources

Billing Database(SFS)

O.R. Database(CPM)

Hospital EMR(CareLink)

Data Warehouse(HPM)

CJRI Registry

Physician Assistants’ Complication Log

Surgeon Self Report

Incident Reports

60 Day Follow-Up Phone Calls

Functional OutcomeInstrument Database

Outpatient Office NoteSystem

Press GaneyHCAHPS

4. Develop the Care Models

A unique opportunity to map out, end to end, the patient experience and then perform a complete care re-design of your program

4. Develop the Care Models

1. pre-op documentation (5)

2. Intra-op documentation (6)

*use of an approved prosthetic implant

3. Post-op In-patient documentation (4)

4. Discharge documentation (4)

5. Post-discharge documentation (3)

22 Clinical Protocols and Best Practices:

Physician Agreement and Acknowledgement

Each Orthopedic surgeon and Anesthesiologist that performs BP surgery will participate in an in-service that outlines in detail their specific responsibilities, the protocols/best practices, and their own personal financial risks for non-compliance.

Patient Agreement and Acknowledgement

Patient responsibilities:

1. follow post-op instructions

2. report complications to surgeon

3. seek emergency care at our hospital

5 - 6. Cost reduction opportunities and pricing the bundle

While re-designing care plans, drill down on the direct cost associated with each step to eliminate waste, duplication and unnecessary services…cost reduction.Determine the “base cost” of the hospital component of the Bundle…first step in pricing the bundle.

5 - 6. Cost reduction opportunities and pricing the bundle

History and PhysicalLaboratoryMedical supplies (including prosthetic implants)NursingDMEPharmacyRadiology (hips only)Physical TherapySurgical supplies

Hospital Base cost per case

“Fair market value”

Physician base cost per case:

1. Time, resources, expenses

2. The warranty provided to the patient or purchaser for post-acute complications

3. The financial risk assumed by the Party

4. Current “market” reimbursement rates

5 - 6. Cost reduction opportunities and pricing the bundle

Surgeon Base cost per case

Calculate Surgeon’s practice cost/hour

Calculate the Surgeon’s time involved with each step of patient flow from initial visit to the 3 month post operative office visit = total hours of care

Surgeon’s practice cost/hour x total hours

5 - 6. Cost reduction opportunitiesand pricing the bundle

Our Anesthesiologists were asked to undertake the same analysis to determine their base component of the package price.

Anesthesiologist Base cost per case

Total Bundled Payment for Primary THA and TKA

Hospital base cost + margin*

Surgeon’s base cost + margin*

Anesthesia base cost + margin*

Small % added to package price for two cash reserves

PLUS

PLUS

= total package price for BP services% package = % risk for shared over runs

*same for all 3 Parties

PLUS

5 - 6. Cost reduction opportunities and pricing the bundle

Emergency Department protocol:

Within 90 day post-op period, establishes a mechanism to determine appropriateness for additional treatment or re-admission for all BP patients. The Orthopedic PAc is the designated point person.

Focus on Hospital Re-admissions

7. Gain-sharing Incentives (or other methods of compensation)

CJRI Service Line Co-Management model:

Shared risk would be looked upon favorably by the OIG but not shared savings…

…we are already compensated for identifying cost savings for the service line.

…This particular model is not a Gain-sharing arrangement

8. Develop a Continuous Process Improvement Plan

•Data Registry

•Standard/consistent clinical protocols

•Shared IT for cost/quality analysis

•Shared financial risk

(a) Clinical Integration

8. Develop a Continuous Process Improvement Plan

1. Annual review of clinical protocols

2. Monitor compliance

3. Provide feedback for variances

4. Quarterly quality data review

5. Annual review of cost of services and opportunities for additional savings

(b) Utilization Review

Process Improvement

measure

assess

change

protocolimplement

adjust

protocol

Process Improvement

measure

assess

change

protocolimplement

adjust

protocol

Blood Transfusion

Based on FOCUS trial, transfusion for symptomsImplemented May 2011

Transfusion rate for TKA and THA cases reduced to 4%

Transfusion rate for THA and TKA 21%

Process Improvement

Blood Transfusion

• Between May, 2011 (new protocol instituted) and January, 2012…

• 21% Transfusion rate reduced to 4%• Saved @550 units of RBCs/year• About @$550,000 cost savings

9. Develop relationships with Post-acute providers

1. ECFs

2. Homecare Agencies

Both participated in our TDABC project with the Harvard Business School

Implementing Bundled Payments:Value added?

Health outcomes

Cost of delivering the outcomesValue =

Implementing Bundled Payments:Value added?

Health outcomes

Cost of delivering the outcomesValue =

Implementing Bundled Payments:Value added?

Length of stay

HCAHPS/Press Ganey scores

Re-admission rates

Implant costs

Cost per case

Contribution margin

outcomes

cost

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

HCAHPS: 84th 98/99th percentile

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

HCAHPS: 84th 98/99th percentile

Readmission rate: 6-7% 2-3%

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

HCAHPS: 84th 98/99th percentile

Readmission rate: 6-7% 2-3%

Implant cost: THA 7.5% TKA 19%

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

HCAHPS: 84th 98/99th percentile

Readmission rate: 6-7% 2-3%

Implant cost: THA 7.5% TKA 19%

Average Direct C/C: 9.9% 5.0%

CJRIJuly ‘09 – July ‘10

LOS: 17.5%

HCAHPS: 84th 98/99th percentile

Readmission rate: 6-7% 2-3%

Implant cost: THA 7.5% TKA 19%

Average Direct C/C: 9.9% 5.0%

CM/case: 89% 62%

CJRI

Review of Surgeon and Anesthesiologist compliance with Bundled Payment clinical protocols…

100% compliance with no variances

Accounting/ Claims

Accounts Payable

Distribution

of

FundsSurgeons

Office

OR Booking

Registration

Pre Assessment

Surgical Screening

Center

Provider

Step Ahead Administration

at CJRIat CJRI

Life cycle of a Bundled Payment claim

Accounting/ Claims

Accounts Payable

Distribution

of

FundsSurgeons

Office

OR Booking

Registration

Pre Assessment

Surgical Screening

Center

Provider

Payment to all Parties by 42

daysCJRI

Life cycle of a Bundled Payment claim

The “Step Ahead” Planat CJRI

Six “prongs” to our Marketing efforts:

1. Commercial Payers

2. CMMS/CMMI

3. Large self-funded Employers/TPAs

4. Medical tourism industry

5. Large PCP groups or ACOs

6. Uninsured or underinsured patients

The “Step Ahead” Planat CJRI

One signed commercial contract with Connecticare (June, 2012) with just over 300 patients under contract to date.

Letter of Intent pending with one National Payer.

Negotiating with commercial TPAs.

Uninsured and under-insured patients.

The reality of Implementing a Bundled Payment program

1. Time commitment

2. Financial commitment

3. Financial risk

4. Legal and Regulatory obstacles

5. Contracting challenges

The reality of Administrating a Bundled Payment program

1. Calculating cost of manual processing

2. Calculating cost of monitoring over runs

3. Double billing issues

4. “retro eligibility” issues - hospital absorbs the loss

5. Collection of Co-Pay and deductibles - hospital

absorbs the loss

Bundled Payment plans:Pitfalls and Risks

1. Unclear definitions and time frames 2. Imperfect risk adjustments3. Financial loss related to risk bearing 4. Does it support “low level” of care?5. Does it encourage “un-bundling” and delay

in treatment6. Administrative burden > anticipated7. What are we going to do with the excess

capacity?

Bundled Payment plans:Risks

8. Caution: Is it just another way for the Commercial Payers to make more money by shifting risk and administrative burden?

Bundled Payment plans:Benefits of implementation

1. Changes culture of distrust

2. Aligns incentives and goals

3. cuts the “fat” and waste

4. Keeps the patient at the “top of the pyramid”

5. Preserves entrepreneurial spirit

6. Encourages healthy re-alignments

Bundled Payment plans:Benefits of implementation

7. The entire process drives operational efficiencies…

“A total of 95% of excessive costs of elective surgical procedures were due to inefficiency and only 5% were due to higher-than-predicted adverse outcomes rates.”

Fry, DE et al. JACS, 2011

Bundled Payment Plan

We recently completed a re-evaluation of our BP program including post-acute services together with the Harvard Business School and IHI’s JRLC using Time-Driven Activity Based Costing methodology.

Professors Porter and Kaplan“Value measurement in Healthcare”

• Time

• Patience

• Discipline

• Steady Physician leadership

• Real $$ cost

• Opportunity cost

Elements of a successful Value journey

Conclusions

• Despite movement towards restructuring healthcare delivery, competing agendas and misaligned priorities still remain between payers and providers

• Broad adoption of the Value Agenda will not be easy

• Performing TDABC, embedding PFCC and implementing bundled payments adds considerable value nonetheless

• YOU must be a player in this space!

Bundled Payment Plan

The end game for your entity will be a re-alignment of incentives amongst all Participants toward delivering the highest quality of care at the lowest cost to the patient and purchaser. This will allow you to compete in the new Healthcare market…

based on Value.

This was done by a bunch of “community” Orthopedic surgeons

“Healing is an Art, Medicine is a Science…Healthcare is a business”

Thank you for your attention and good luck with this work

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Streamlining Orthopedic Episodes of Care

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