As episode-of-care payments begin to go mainstream, leaders are learning how to avoid critical and costly business mistakes.
This article first appeared in the March 2016 issue of HealthLeaders magazine.
The Centers for Medicare & Medicaid Services has mandated that hospitals in 67 markets participate in bundled payments for hip and knee replacements. It's part of an acceleration in the transition to risk-based payment arrangements, and about 800 hospitals will be subject to the new reimbursement regime.
This is the first time CMS is requiring mandatory participation in any bundling; before, all such initiatives have been voluntary for hospitals. It shows a commitment from Medicare—some employers and commercial payers are already beyond the experimental stage—to integrate care and put providers at financial risk for outcomes.
There are variations in the level of downside risk based on the year of the program and the type of provider organization, but maximum stop-loss limits are set at 5% in year 2, 10% in year 3, and 20% in years 4 and 5 for specified procedures.
Align physicians, incent performance
Commercial payers and even employers have directly contracted with healthcare organizations in irregular fashion for a few years now—more on that later—but because CMS is the biggest payer for most hospitals and is mandating participation, its new requirement has many hospital leaders worried. Will they be able to perform?
Baptist Health System, a San Antonio, Texas-based five-hospital organization that is part of Dallas-based Tenet Healthcare, has plenty of experience with bundling; Baptist Health was one of the first participants in CMS' acute care episode demonstration project, aimed at testing the feasibility of bundled payments for cardio and orthopedic procedures.
Though not all organizations that participated experienced success, Gary Whittington, Baptist Health's chief financial officer, says the benefits that have accrued over time go much further than the financials since the organization began the Medicare Acute Care Episode (ACE) pilot in 2009.
Whittington says the pilot evolved into a market differentiator for the health system. But more important, it became a powerful physician alignment tool for an organization that didn't employ any orthopedic surgeons, yet had a large orthopedic service line. He says the leadership team was betting back in 2009 that this kind of payment regime was going to grow dynamically over time.
Philip Betbeze is the senior leadership editor at HealthLeaders.