Many participants on today’s Technical Assistance Conference Call were surprised to hear the change to the payment calculation that will now be required for the bundled pricing proposal. (We even heard an off-mic “OMG” comment from someone on the call.) Previously the proposed payment amount was only to include the payments made by CMS to providers, and not payments by beneficiaries. However, many applicants pointed out that a decrease in the proportion of deductible and coinsurance amounts paid by beneficiaries would result in a corresponding increase in the portion of the payment paid by CMS for the same services, which would be compared to the budget and would appear to be a cost increase. This would disadvantage the providers. Now the proportion of beneficiary payment to the total payment is irrelevant, which protects the provider against these types of effects.
At first glance this change appears to be neutral, since the total amount of payments to provider doesn’t change. However, its effect is to increase the leverage in the risk/reward payment calculation, since the amount of payment subject to the target is larger. Consider the following example of an episode in which the provider is paid $10,000 by CMS and $2,000 by the beneficiary. The provider has contracted for a 2% discount on these cases. Before this announced change the discount would be computed on the $10,000 payment and result in a target (to be compared to the CMS payment only) of $9800. After the change the discount would be applied to the total payment and would result in a target budget of $11,760 for the combined CMS and beneficiary amounts.
Now assume a 10% reduction in utilization, which reduces overall payments to providers by 10%. The CMS payment is now $9000 and the beneficiary payment is now $1800. In the “Before” scenario the target ($9800) would be compared to the CMS payment and yield a payment from CMS of $800. In the “After” scenario the combined CMS and beneficiary payments are $18,800 as compared to the target of $11,760 resulting in a payment from CMS of $960. This increase in payment comes as a result of including the beneficiary payment in the total cost reduction.
Of course the leverage works in the opposite direction if costs increase. A 10% increase in costs would result in a payment to CMS of $1200 before the change, but $1440 when beneficiary costs are included. But hopefully bundled payment applicants are expecting cost decreases (otherwise they wouldn’t be participating), so this change in methodology will be advantageous to them.
