The Future of Bundled Payment in the Trump Administration

Many of us in the bundled payment world had barely overcome our surprise at the presidential election results when we heard of the selection of Dr. Tom Price as HHS Secretary. As a component of the much-larger Affordable Care Act, we had hoped that the bundled payment programs would be “under the radar” and might not receive significant attention, at least until later in the administration. But Dr. Price has taken aim at the current Comprehensive Care for Joint Replacement (CJR) program by introducing in March 2016 H. R. 4848 , or “Healthy Inpatient Procedures Act of 2016” or the “HIP Act”, which would suspend implementation of the CJR program until January 1, 2018. (Interestingly, that bill stipulates that “This section shall not apply to implementation of such model that has occurred before the date of the enactment of this Act”, which may indicate an unwillingness to terminate a program whose implementation has already begun.)  However, Dr. Price was also a lead author on a letter sent to Andrew Slavitt and Patrick Conway of CMS targeting the CJR and proposed cardiology episode payment model (EPM), along with the Part B drug model, as potentially failing to produce quality improvements and cost savings, and that those mandatory programs exceeded CMS’ statutory authority. The letter insists that CMMI “cease all current and future planned mandatory initiatives within the CMMI”.

Notably these initiatives didn’t address the Bundled Payment for Care Improvement (BPCI) program implemented in 2013. This program is voluntary, but has several other distinguishing characteristics from CJR and EPM models in that physicians can “own” the episodes in BPCI, but in the CJR and EPM programs the participants must be hospitals.  In the BPCI program, and particularly in the major joint replacement DRGs, many physicians have benefitted financially from cost savings in those episodes, and physician organizations strongly protested the proposed CJR rules that limited participation to hospitals (including a letter from the American Academy of Orthopedic Surgeons, of which Dr. Price is one). In addition, the BPCI program allowed entities called “conveners” to share risk with participants, which allowed many physicians to participate in a program that might otherwise create too much financial risk for a relatively small physician practice, but the CJR and EPM programs don’t allow conveners. Therefore, these new programs provide less financial opportunity for physicians, which may have occurred to Dr. Price in his opposition to them.

So what will come of this change in administration in the world of bundled payment? Obviously nobody knows for certain but here are a few of our speculations.

First, bundled payment programs themselves have good support, even from Republicans. The American Hospital Association recently released a letter to President-elect Trump noting (among other issues) the importance of continuing programs such as bundled payment. In 2016 Rep Diane Black (R-TN) introduced H.R.2502 - Comprehensive Care Payment Innovation Act of 2015, hopefully showing Republican support for these programs. Therefore, there’s hope that a Republican administration will be generally supportive of these programs, even as they dislike some characteristics of certain programs.

Also, despite Dr. Price’s concerns of cost-effectiveness, bundled payment programs have generally been shown to decrease the cost to the Medicare program of care provided within those programs. In 2012 the Congressional Budget Office released a report on value-based payment programs showing that while other then-current initiatives had dubious financial results, the bundled payment programs did create savings to the Medicare program. This is because of the structure of these programs in that the savings to Medicare results from a discount in the target prices from the amount that’s otherwise paid to providers. This means that if the costs of episodes didn’t change, the participant must pay Medicare the amount of the discount, which assures Medicare of creating “savings” from every episode. (By contract, in the ‘shared savings” programs such as ACOs Medicare has no savings if the provider was unable to reduce costs.) Anecdotally, in our work with dozens of BPCI and CJR participants we have seen significant reductions in episode costs through care management programs, and the results of the BPCI program in major joint replacement surgery are likely to show significant cost savings. In addition, the BPCI “target rates” for major joint replacement, which are based on national episode costs, have continually decreased since 2013 indicating that these costs are dropping consistently across the country. Hopefully these results will assuage Dr. Price’s concerns over the cost-effectiveness of these programs.

So hopefully all of this means that Medicare bundled payment programs will continue, albeit perhaps in some different form. But what about the current CJR program and the proposed EPM model?

The easiest answer is that Dr. Price doesn’t like them, so they’ll disappear. How that would occur isn’t easily defined – there may be provider contracts that have to be honored, and payments made to providers for savings achieved to date. But it appears that CMS has the authority to terminate this program at some point, which is a possibility.

But another consideration is that Dr. Price apparently doesn’t dislike ALL bundled payment programs, since he hasn’t objected to BPCI – he just dislikes the mandatory programs. And considering that some CJR participants may want to stay in the program, why not keep the program in place but allow uninterested hospitals to opt out?

The problem with this approach is that there can’t be a voluntary program in which the targets are determined from averages of other hospitals’ costs, which is how CJR and EPM will eventually determine their targets. If such a program were voluntary, hospitals whose costs exceeded those averages would simply elect not to participate; hospitals with lower costs would participate and the program would collapse financially. That’s probably one reason that CMS elected mandatory participation in these programs – it’s the only way to implement regional payment targets. And why are regional targets desirable? Because the alternative is targets based on the participant’s own historical cost (as is done in BPCI), which means that historically-inefficient hospitals will receive the greatest benefit (because it’s easier for them to reduce their costs), while historically-efficient hospitals will receive the least benefit since their costs are already low and cost reduction is more difficult. Transition from historically-based targets to regional targets allows already-efficient hospitals to benefit from their efficiency. This is good policy, but it’s impossible without mandatory participation. Hopefully this will become apparent to the new team at CMS.

So if CJR can’t continue in its present form with voluntary participation, what might happen to CJR hospitals who want to continue with such a program? One possible solution is that they’ll be allowed to join the BPCI program in the major joint replacement episodes, but retaining their current baseline (2012-14 in CJR vs. 2009-12 in BPCI).  Since BPCI targets are historically-based there’s no opportunity for adverse selection (i.e., being forced into a regional target that’s lower than your current cost), and therefore no built-in incentive or disincentive to participate. Similarly, the EPM program could be implemented by simply opening up participation in BPCI to participants in those episodes. This approach retains the flaws described above in effectively penalizing efficient hospitals, but it would meet the apparent Republican criterion of a voluntary program.

Whether this will actually occur remains to be seen. Other more far-reaching actions (complete repeal of the ACA; defunding of CMMI, etc.) might render these issues moot. But hopefully the value of these programs will continue to be evident, and they will continue to exist.