The CFA Perspective

Bundling for Ortho Payment Means Cardiovascular Isn’t Far Behind

Posted by Charles Franc

8/31/15 11:42 AM

Two recent announcements about healthcare payment and costs should wake up every CV service line administrator:

The first was the news that Medicare officials are proposing a switch to bundled payments for joint replacement surgeries (see www.LosAngelesTimes.com/business for Saturday, July 11, 2015, and Modern Healthcare July 20, 2015).  For the first time, the program would be mandatory and start in 75 markets, affecting 800 hospitals, with a goal of going mandatory nationwide in two years.  Hospitals would receive a set bundled payment covering all services – including a 90 day post-hospitalization period.  They must either lower their costs to make a profit or accept the losses starting in the second year of the project.  Essentially, this is full financial risk for patients that constitute a $7 billion market for Medicare.

For years, Medicare and private payers have published studies showing the cost variation between hospitals in similar markets, have put together pilot projects to prove principle and even devised programs called “reference pricing” where hospitals are reimbursed no more than the average charge for the market.  This move by Medicare for orthopedics was inevitable given the size of the market and the projected savings of $153 million, and so is the eventual bundling of cardiac surgeries and probably other CV procedures. How many demonstration projects and studies must we see to confirm the inevitability of their next move?  We have all participated in enough bundling projects that we know they can work, although not without challenges, some of them considerable.  Hasn’t the Dartmouth Atlas of Health Care (http://www.dartmouthatlas.org) been publishing the variations in clinical care and cost of care distributed around the U.S. since the mid 1990’s?

Further proof came July 16th with the publication of the BlueCross/BlueShield study on cost variation for PCI in the U.S. (see www. http://www.bcbs.com/healthofamerica/cardiac_cost_variation.pdf).  Once again, another study points out the considerable cost variation among hospitals for PCI in major metro areas in the U.S.  Fully half the major metro areas (MMA) have variations over 100%.  The more facilities in an MMA, the more variability there was.  This is the kind of information both Medicare and private payers need to further their goal of shifting aggressively away from fee-for-service reimbursement.

The question at hand is not “whether or not” but rather “when” will Medicare dictate mandatory bundling for cardiac services?  CFA believes that bundling or some similar risk-based reimbursement model is inevitable in the near term.

CFA’s senior consultants began “package pricing” (the term then for today’s “bundling”) in the early 1990’s and recognize the challenges hospitals and health system face in this process.  The complexity is now compounded by having to guarantee a price for an episode of care – from pre-hospitalization, through hospitalization, into post-discharge care for a specific period of time.  A commitment to bundling care begins with an organizational assessment of the overall capabilities and commitment of the hospital to begin the process required.  In the next blog post, CFA will address these capabilities and commitments so that you can evaluate your ability to get started.

As always, CFA invites your comments, questions and suggestions.

Topics: Bundled Hospital Payment, Medicare bundled payments