In a previous blog post, we introduced the concept of episodes of care (EOC) and its conceptual and practical application to improving program performance and preparing for value based care.  

In preparing for the EOC approach as a precursor to the increasing application of bundled payment for EOC’s, it is vitally important to ascertain your hospital’s relative ability to compete on both price and quality.  Baseline information is required.

While the topic of EOC analytics is complex, this blog presents an example of a simple, baseline analysis of two competing hospitals in a regional marketplace in the Midwest.  The data comes from a proprietary Medicare database and is structured to provide EOC information, by category (our example is coronary artery bypass graft, or CABG, surgery), for a 90-day EOC.  The table, below, contains metrics to compare individual hospital performance against a regional average.  Note that this regional average may or may not eventually equate to the “target price” proposed to be used in the Medicare bundle (should it be implemented), because the target price is an amalgam of both hospital historical costs and regional average costs phased in over time, but we believe it a reasonable surrogate to use to make our point in this discussion.

Comparative Cost Analyses

Setting a bundled price means understanding the total cost of care represented by the defined EOC.  Note that a 90-day bundle includes acute care costs (e.g., index admission, readmission or admission to another acute care facility) as well as significant post-acute care (PAC) costs (e.g., home care, skilled nursing, outpatient care and others).  This time period represents a data challenge to hospitals, as they have not previously had access to PAC or payer data.  Our example illustrates the 80/20 rule – the episode represents about 80% acute care costs and about 20% PAC costs.  Obviously, under this scenario, failure to understand and ultimately control the use of and cost of PAC resources can have a significant negative outcome on financial performance.

Note also that these two example hospitals are relatively low volume cardiac surgery providers 

Implications

The above data paint a baseline, summary picture of two hospitals and how each might perform under an EOC payment model.  This is by no means a definitive picture, nor does it address other non-financial performance standards (e.g., HCAHPS scores; all-cause, risk-adjusted mortality rate) that will have to be addressed for successful EOC package pricing.  But it does provide an, all-other-factors-being-equal, snapshot picture, and it raises some important questions that will need to be addressed:

• ABC hospital should be concerned with its overall performance.
• On the plus side, its Average Cost/Episode is positive and under the Regional Average.
• It has real issues with Readmission Rate, Non-Anchor Hospital and PAC Costs, which may be interdependent; its overall ALOS may be being impacted by these issues as well.
• Without question, there is room for care improvement as well as cost management.

Conclusion

Obviously, our intent here is not to solve these problems, nor to take the necessary “deep-dive” into the analytic data that resides in both hospital and payer databases, but to point out that relevant data must be used to begin to identify issues and point one in the right direction to both pursue more definitive information and ultimately find answers.  Identifying the right problem then must lead to the right solution.  The identification of issues focusing on cost, care coordination, post-acute care patterns, and quality outcomes are critical for prolonged success in a value-based reimbursement world moving towards EOC-centric payment models.  Having access to comparative databases can provide valuable information that will help address these challenges.

If you are interested in learning more about strategies to deal with bundled pricing, EOC analysis, low volume cardiac surgery programs, programmatic consolidation, or other cardiovascular service line concerns, please contact CFA at (949) 443-4005 or by e-mail at cfa@charlesfrancassociates.com.