CMS Announces Significant Changes in the BPCI Reconciliation Process

Note: this article was updated based on a webinar from CMS on 11/6/14.

On November 5, CMS announced several major changes to the BPCI reconciliation process.  These changes were apparently instigated by significant industry dissatisfaction with the instability and unpredictability of payment targets, particularly the various revisions that were made to correct calculation errors in the target prices. These changes will hopefully alleviate some of the participants’ concerns, many of whom had been reconsidering their participation in BPCI, and several of whom had sent termination notices CMS.

The methodological changes are the following:

Trend Factors: The trend factors are the multipliers that are used each quarter to update target prices from the previous quarter. These factors reflect the national change in average episode spend by DRG - based on Medicare FFS claims. For some low-volume DRGs, the quarterly variations in the trend factors were significant; for example, the trend factor for the cardiac valve DRG 218 increased by 5 percentage points from the fourth quarter of 2013 to the first quarter of 2014. This instability could create significant swings in a surplus or deficit for that DRG.

With this announcement, CMS is capping the quarterly trend factor variation at a maximum of 3.5%. This cap is unlikely to affect high-volume DRGs, but may have some effect on DRGs with lower national episode volumes. The change will take effect for reconciliations starting in the second quarter of 2014.

Capping savings and losses: Some BPCI participants incurred significant surpluses or losses in their first reconciliation, with those amounts exceeding 20% in the aggregate (across all at-risk episodes). Effective with the second quarter 2014 reconciliation, aggregate surpluses or deficits will be capped at 20%. This limit is fairly high and most participants will not have surpluses or losses that exceed 20% in one quarter.  Importantly, this limit will be applied at the awardee/awardee convener level, and not at the episode initiator level (unless the episode initiator has no convener). This limitation appears to be primarily directed at limiting surpluses or deficits of conveners, and not individual BPCI participants.

Elimination of downside financial risk for early at-risk awardees: This is the most significant policy change. Essentially, it assures that the earliest at-risk BPCI participants will not incur an aggregate financial loss from BPCI participation in 2013 and 2014. This limit will be applied at the episode initiator level, meaning that individual participants in convened groups will be held harmless for aggregate losses in the first quarters of participation - when there was substantial fluctuation due to the "newness" of the program.

Two questions remain unanswered at this point: first, whether the stop-loss cap will be applied separately for each quarter or in the aggregate across all reconciliation quarters. We assume that it will be applied for each quarter, but the CMS announcement reads "for the first five quarters", not "for each of the first five quarters". CMS has subsequently clarified that our assumption is correct.

The second question is whether the stop-loss will be applied at a DRG, episode family, or aggregate level. Our assumption is that it will be applied in aggregate, across all episode families, meaning that it will only apply in instances where an episode initiator experiences a net loss for all of its at-risk episodes. We do not believe that CMS intended to allow participants who are making money in a particular quarter to make more money by eliminating losses on individual episode families. This was subsequently clarified - the stop-loss is at an aggregate across all episode families.

Overall this announcement appears to be a positive step in retaining interest and participation in the BPCI program.