Dive into Bundled Payments or Wait?

Bundled payments may be the reimbursement model of the future—but deciding if the "future is now" for your organization, or if you should wait until more of these models are tested, is a key strategic decision. In August, 21st Century Oncology, the largest radiation therapy provider in the nation and a cancer treatment network, announced it was pursuing a case rate reimbursement model with Humana for its radiation therapy services. Financial leaders should keep an eye on this specialty bundled payment model.

The decision of when to move forward with a bundled payment model isn't a simple one. At the recent HealthLeaders Media CFO Exchange in Kiawah Island, SC, I asked 18 of the nation's top financial leaders how far along their organizations were in the pursuit of bundled payment models. The response was mixed, but most had little in the works. Many leaders felt it was still too early for their hospital or health system and/or the payer's organizations to establish these agreements.

But a few hospitals were in the early stages, such as Trinity Health in Novi, MI. "We are applying for one of the bundled payment demonstration projects in one of our markets, but we don't yet know if we'll be chosen and how that will pan out," said Benjamin R. Carter, CPA, FHFMA, senior vice president and CFO at Trinity Health, who attended the CFO Exchange. Trinity owns 35 hospitals, manages 12 others, and has a vast network of outpatient, long-term care, home health, and hospice programs in 10 states. 

"We are developing accountable care networks and working hard at clinical integration, but we really don't have much in the way of risk-based contracts yet. We just don't know that we're ready yet to manage effectively in that space; we don't want to see the industry achieve the same outcomes it did in the late 1990s. We just don't want to repeat the same mistakes, so we are being cautious," Carter explained. "This work has really been a greater benefit to the insurance companies than to our system because we have a number of patients in our patient-centered medical homes, and they've been effective at reducing hospital utilization. At the same time, we do not have the benefit of a gainsharing contract."

For Trinity, the puzzle is how to arrive at a bundled rate across providers, various clinical areas, and the system as a whole. Some financial leaders at the CFO Exchange noted that bundling across a health system is highly challenging, especially when it comes to dividing up payment. So approaching bundled payments through a specific specialty may prove more successful in the early stages of these payment models—which is why the reimbursement model between Fort Myers, Fla.–based 21st Century Oncology and Louisville, KY–based Humana is one to watch.

The partnership is intended to bundle all the procedures performed during a particular episode of care, with the goal of streamlining the claims payment process, eliminating administrative waste, and facilitating better care coordination across providers.

"For over two years, 21st Century has felt that the payment model is going to evolve. We've been working with CMS closely to pilot this [type of payment model] in the Medicare space; we had those discussions going prior to reaching a commercial agreement," says Kurt Janavitz, senior vice president of managed care and network development at 21st Century Oncology. "Rather than have this model thrust upon us and have to react to it, we decided to take a leadership position to gain the experience with it, and to use it as a differentiator for payer groups wanting to use it."

21st Century Oncology provides cancer care services across multiple modalities, is the nation's largest radiation oncology provider, and has the second-largest group of urologists in the U.S. The physician-led company operates in 16 states and seven countries, has a network of over 250 facilities, and is affiliated with over 500 physicians, including a range of specialties from radiation oncologists to other cancer-related specialists.

Janavitz explains that the organization has spent over 30 years delivering advanced integrated cancer care, but a little over five years ago some payers began to push for more tightly managed cancer and radiation benefits. As these payers scrutinized providers' decisions around treatment modalities offered to patients, paperwork for both providers and payers increased and payments were slowed or decreased.

"There was a lot of micro-managing of benefits. Payers spent a lot of time looking at each action that was delivered, and a lot of clinical time was being spent providing supporting evidence around why we were doing a specific treatment. It was administratively burdensome for everyone," says Janavitz. 21st Century Oncology wanted to decrease the burden and ensure that its patients received treatment based on clinicians' recommendations rather than payers' reimbursement policies.

"We're experts for treatment, so we said we should come up with the right overall [payment] rate, and then that gets the nonsense out of the process of delivering care to the patient. The cash flow is up-front as opposed to claim-by-claim. We decided to do this as a national case rate contract as opposed to doing a different contract for each of Humana's individual markets," he explains.

Humana opted to partner with 21st Century Oncology for similar reasons. "We believe this partnership can improve administrative efficiencies with healthcare providers in Humana's national network," said Bill Barnes, Humana's vice president of national contracting, in a press statement.

Calculating the bundled rate required the organization to comb through historical treatment data and arrive at an average price for each type of treatment.

"We have a large database, and we have the resources and expertise to determine what an appropriate clinical bundle should look like [when deciding on bundled rates]," says Janavitz. "That's not to say that there can't be a deviation [in a standard treatment], but we can come up with a standard treatment that's followed 85% of the time for patients, and know that the other 15% may not conform and accommodate for that."

The partners also needed to define the bundle for each treatment modality. For instance, 21st Century Oncology decided not to include things like consultations and proton therapy in its bundle.

"You don't want to make it too complicated for the payer to administer, and you also want to understand it. It's one of the simpler types of agreements we've seen, actually," Janavitz says.

Which payer to select for testing the case rate model was also a consideration. "Humana is a big payer but we do have bigger. But they're large enough to give value to the experience, but not to [financially] cripple us if it doesn't go as expected," he says.

Janavitz adds that 21st Century Oncologist's chief medical officer was instrumental in working with the medical advisory board and developing care pathway protocols for providers to follow, and addressing provider questions about the protocols and the case rates.

In anticipation of the bundled contract, the organizations also looked at their costs and provider utilization levels, benchmarking each organization regionally and nationally to look for possible savings.

Even with these efforts, Janavitz says the 21st Century Oncology is anticipating a reduction in patient volume and some services as a result of the bundled contract. How greatly these decreases will influence the book of business is perhaps their largest unknown in this process.

"There is a slight unit revenue reduction, but no payer will spend time on this unless there's some sort of unit revenue change out of the gate. We think it will be relatively minor, but we'll evaluate this after a year to see if [these national case rates for standard treatments] are living up to our financial expectations," he says.

In the meantime, 21st Century Oncology is looking for opportunities to enact bundled payment with other payers. How quickly more contracts follow will tell CFOs whether this is a good model to emulate.