Analytics for Bundled Payments - Introduction

This article is an excerpt of Singletrack Analytics' "Analytics for Bundled Payment" white paper. To request a copy, complete the information on the Contact Us page.

If CMS meets its planned timeframe, FedEx packages containing the CMS bundled payment data will begin arriving sometime near the end of February at the hospitals that requested it.  This arrival will mark the beginning of a journey of data analysis and exploration into the world of the Medicare bundled payment initiative (MBPI). 

The MBPI Model

Under Model 2[1] of this initiative, groups of providers (physician groups, hospitals, and other providers) can agree to contract with CMS to accept a fixed payment for all services provided to patients who are hospitalized within a specified group of DRGs.  The payment includes all services provided that are billed to Medicare by all providers (not just those within the contracting organization) for those patients during the inpatient stay, as well as from 30 to 90 days after discharge.  If the sum of those payment is lower than the bundled amount, the contracting organization retains the difference.  Conversely, if the total payments exceed the bundled amount the contracting organization must repay the difference to CMS.

The MBPI presents two major categories of cost saving opportunities for participating providers:

• Reductions in provider utilization within the bundled services – this occurs when payments to the providers of services within the bundle are lower than the bundled payment budget contracted with CMS.  Since all providers are paid at their respective Medicare fees, the reduction must occur through a decrease in services billed to Medicare; for example because of fewer physician services, elimination of outlier cases (and therefore outlier payments to the hospital), reductions in readmissions, or others.  For example, in the heart bypass demonstration of the 1990s, cardiac surgeons began performing pre-op and postop patient visits themselves rather than referring them to cardiologists.  This elimination of payments to cardiologists reduced provider payments below the bundled amount and resulted in gainsharing payments to the surgeons.  (The cardiologists were not pleased with this result…)
• Reductions in hospital expenses – this can occur when hospitals and physicians work together to identify cost-saving opportunities within the hospital.  This occurred during the Acute Care Episodes (ACE) demonstration when orthopedists from a large healthcare system got together to reduce the number of different hip prostheses used throughout the health system from nine to two.  The hospital then aggressively negotiated with the vendors, forcing significant price concessions to retain the hospital’s business.  This created a significant savings for the hospital, which was shared with the orthopedists.  This is the result of the loosening of restrictions on gainsharing for BPI participants and is not directly related to the bundled payment.

The Data

The data to be supplied by CMS will contain heretofore-unavailable information about the services provided to hospital inpatients during and after their stay, for a wide variety of providers inside and outside of the applicant hospital’s health system.This provides a unique opportunity for hospitals and physicians to explore the cost structures and treatment patterns of other providers treating patients in the same DRGs.

The Analytical Process

The bundled payment analysis process consists of three major steps.  The first step involves developing the information necessary to prepare the proposal for CMS.  This involves selection of DRGs to be included, analysis of the provider payments (the “cost” to CMS) of those DRGs, development of proposed methodology to reduce those costs, and assembling that information into a discounted payment proposal for CMS.  The second phase involves analyzing actual hospital costs (routine care, ancillary services, medical supplies, etc.) that may be reduced through cooperative efforts of the hospital and physicians.  These reductions can be shared with the physicians through the gainsharing provisions of the bundled payment initiative.  The third optional phase can utilize the CMS data to provide a comprehensive view of all services provided to hospital patients, and patients of other hospitals in the same geographic region, using data from other providers that was never previously available to the hospital. 

This paper will deal with the “first step” analysis.  Subsequent papers will deal with the other analyses.

The next installment of this article series provides an overview of the MBPI analytical process. To request a copy of the entire white paper, complete the information on the Contact Us page.