In recent conversations, articles and seminars we’ve heard wary potential BPCI Model 2 participants propose to select a 30-day episode length as a “safer” alternative to the longer 90-day episode. In some cases the shorter episode length does provide some risk mitigation against uncontrollable high costs such as readmissions. However, that safety comes at a price that may not be warranted. This is because of these two factors:
- A 30 day episode requires a 3% discount to CMS, whereas a 90-day episode requires only a 2% reduction, and
- The discount must be recovered from the post-acute cost occurring in the first 30 days of the episode, not the entire 90 days of the longer episode length.
Post-Acute Percentage of Total Episode Cost
Let’s walk through the details of this analysis. The first issue is the percentage of the total episode cost that occurs in the post-acute period. This is important because the post-acute period provides the only opportunity for cost reduction since the index admission is paid at a DRG rate and provides minimal opportunity. Therefore, an episode family having a low percentage of post-acute cost requires more significant interventions to reduce cost to cover the CMS discount, which is computed on the entire episode cost. This occurs irrespective of the episode length and indicates the overall cost savings potential of the episode.
The graph below shows the percentage of total episode cost occurring in the 90-day post-acute period (the remainder of that cost occurs during the index admission) for several common episode families. From this graph it’s apparent that creating sufficient cost savings from cardiac valve and PCI procedures will be more difficult than in the other episode families because there’s less post-acute cost providing an opportunity for reduction. For cardiac valve, for example, only 27% of the episode cost occurs in the post-acute period when cost savings can occur; the remainder of the cost occurs in the index admission. By contrast, for CHF 71% of the episode cost occurs in the post-acute period, offering a larger opportunity to create cost savings.
Distribution of Post-Acute Cost
The graph above shows the amount of cost available throughout a 90-day post-discharge period. Since the episode length choices are generally between 30 and 90 day episodes, the next issue is the distribution of the post-acute cost throughout the 30 or 90-day post-acute periods. This is important because obviously cost reductions in a 30-day episode can only occur within the first 30 days. A 90-day episode offers a longer period in which cost reductions can be created.
As shown in the graph below, different episode families have varying distributions of cost throughout the post-discharge period. COPD and CHF have a significant amount of cost in the 31-90 day period, whereas much of the cost of cardiac valve and major joint replacement episodes occurs in the first 30 days.
Post-Acute Reduction Required to Cover the CMS Discount
The final factor in this analysis is the difference in the CMS discount between 30 and 90-day episodes. For 30 day episodes, the discount given to CMS is 3% of the 30-day episode cost, while for 90-day episodes it’s 2% of the 90-day episode cost.
When the 30-day episode cost is significantly lower than the 90-day cost, the 3% CMS discount can be lower than the 2% 90-day discount. But when the 30 and 90-day episode costs are close, the cost of the 3% discount is greater than the cost of the 2% discount, because the difference in episode costs isn’t large enough to cover the 1% difference in the discount amounts.
In the table below, for CHF and COPD the amount of discounts for the two episode lengths are close to being equal because of the distribution of cost throughout the episode. But for cardiac valve, major joint replacement and PCI the 3% discount amount is significantly higher than the 2% amount because there’s not much cost in the last 60 days of those episodes.
Creating Savings to Cover the CMS Discount
Putting all of these factors together, it becomes apparent that 30-day episodes can have a larger CMS discount amount than 90-day episodes, and also have a more limited opportunity to recover that cost from the shorter episode. This is shown in the graph below.
This graph shows the percentage reduction in the available post-acute cost in each episode family necessary to cover the respective discount percentage in that episode length. For a 90-day CHF episode the 2% CMS discount could be recovered by a 2.5% reduction in the 90-day post-acute period’s cost. By contrast, a 30-day episode would require a 5.4% reduction in the 30-day episode’s post-acute cost to cover the 3% discount. For the cardiac valve and PCI episodes the differences are even more dramatic – those episode families would require about a 12% reduction in post-acute cost to break even in a 30-day episode, while only requiring a 4-6% cost reduction for a break-even in a 90-day episode. Cost reductions of that magnitude are extremely difficult to achieve, which means that it’s highly unlikely that 30-day episodes lengths in these episode families would break even.
Since achieving savings in the last 60 days of a 90-day episode may be difficult, the final (gray) bar in the graph above shows the percent reduction necessary to cover the 2% CMS discount entirely in the first 30 days of a 90-day episode, assuming that the last 60 days of that episode offer no opportunity. This shows that the 90-day episode is generally preferable (except in CHF and COPD), even if there’s no perceived opportunity for cost reduction in the last 60 days of the episode. But if there’s any significant opportunity for cost reduction in the last 60 days of the episode a 90-day length is generally the better choice.
Considerations and Conclusion
So when is a 30-day episode preferable? For medical DRGs that have significant cost in the latter part of the episode that’s not believed to be an opportunity, a 30-day episode may be the best choice. But for other episodes, the 3% discount simply represents additional cost that needs to be recovered before financial break-even can occur, and thereby decreases the possibility of financial success. Careful analysis of the data is necessary for the correct decision – intuition may lead to the wrong conclusion.