Finding Joy in Bundled Payments

Long-term gains appear to outweigh short-term pains from adoption of bundled payments for hip and knee replacement procedures, a pair of healthcare payment experts says.

Healthcare providers experiencing high anxiety over Medicare's bundled payment initiative should calm their nerves with the sage advice of the Chinese philosopher Lao Tzu: "A journey of a thousand miles begins with a single step."

This month, the Centers for Medicare & Medicaid Services proposed mandatory bundled payments for hospital-based hip and knee replacement procedures. Mandatory is a scary word in nearly any healthcare reform scenario, and the proposed Comprehensive Care for Joint Replacement (CCJR) payment model has generated a significant measure of provider consternation, including fear over the financially punitive potential of assuming full risk for episodes of care for inpatient surgical procedures such as hip replacement.

On July 9, CMS officials released a fact sheet highlighting key features of the CCJR bundled payment model:

• An episode of care for hip and knee replacements would begin at surgery and end 90 days later. Hospitals "would be accountable for the costs and quality of care."
• Medicare would set quality metrics and pricing benchmarks for the joint-replacement episodes of care. "Depending on the hospital's quality and cost performance during the episode, the hospital would either earn a financial reward or be required to repay Medicare for a portion of the costs."
• In addition to holding hospitals accountable for the cost and quality of care, the CCJR bundled payment model is designed to boost care coordination "with the goal of reducing avoidable hospitalizations and complications."

The public comment period for the CMS bundled payment proposal closes on Sept. 8.

Over the past week, I reached out to two healthcare payment experts for operational and theoretical perspectives on the CMS bundled payment model for hip and knee replacements. From their vantage points, there are no obvious alternate routes to the bundled payment course CMS is setting.

Orthopedics Bundled Payments Are a Classroom for Value-Based Care

No Obvious Alternatives
Bundled payments encourage providers to deliver services cost-effectively without compromising quality, according to T. Clifford Deveny, MD, senior vice president for physician services and clinical integration at Catholic Health Initiatives. The Englewood, CO-based nonprofit health system operates more than 100 hospitals in 19 states.
 
"It's high time we start to create realistic boundaries between our expectations for healthcare and our resources," Deveny told me last week. "There is enough data now from the [CMS] pilot programs to show that bundled payments work, and orthopedics is probably an area where 'spend' is going to explode in Medicare."

He says the proposed bundled payment model for hip and knee replacements is an example of CMS playing a practical and essential role in the healthcare industry's journey toward value-based service delivery.

"The medical community does not adopt these things on its own. We talk about it academically, but it doesn't get adopted. We kind of have to force this to happen. Healthcare is an economic engine that is out of control. I applaud the largest payer in the United States saying 'enough is enough.'"

Since passage of the Patient Protection and Affordable Care Act in 2010, CHI has been trying to break through obstacles to early adoption of value-based care, with initiatives including bundled payments for joint replacement procedures and investment of more than $2.5 billion to upgrade electronic medical record capabilities across the health system.

Why Hips and Knees?
Deveny says hip and knee replacement procedures are a practical area for healthcare providers to start introducing bundled payments for three reasons:

• Most are elective procedures, and bundled payments "create a box that the whole continuum of care can be put into" for relatively easy management clinically and financially.
• Orthopedists are a "willing specialty" with professional associations such as the American Academy of Orthopaedic Surgeons taking an active role in educating doctors about the alternative payment model.
• Joint replacement surgeries have "a very predictable disease process."

In practice, CHI's leadership decided to account for human nature while holding orthopedists accountable for joint replacement episodes of care, Deveny says, noting that the organization has consistently emphasized the benefits of adopting bundled payments rather than the potential financial penalty. "We created a safe environment and an opportunity."

With some of the fear taken out of the value-based payment equation, CHI unleashed an unexpected driver of change in the health system's bundled payment initiative for joint replacements.

"Doctors are smart," he says. "They're top performers, and they don't want to lag behind. This allows them to measure themselves against their peers. It created a national competitiveness in the organization."

CMS is Not the Problem
Harold Miller, president and CEO of the Pittsburgh-based Center for Healthcare Quality and Payment Reform, is a master theoretician in the area of value-based payment for healthcare services. He points to the chasm separating the lofty value-based goals of CMS payment reform initiatives and the operational flaws in the agency's alternative payment programs. On several occasions since he and I first crossed paths nearly a year ago in Boston, Miller has passionately and convincingly contended that Medicare's shared savings programs are an overly timid step in the journey from fee-for-service medicine to value-based care.

From his perspective, the proposed Comprehensive Care for Joint Replacement payment model is deeply flawed.

Last week, Miller published an analysis of the CCJR payment model titled "Bundling Badly: The Problems with Medicare's Proposal for Comprehensive Care for Joint Replacement." Among his criticism is the contention that CCRJ is "primarily a plan to penalize hospitals when patients receive higher-than-average amounts of post-acute care services after knee or hip surgery."

From a practical perspective, Miller believes CMS is playing an indispensable— and relatively effective— role in guiding the healthcare industry toward value-based delivery of services.

"You may be surprised to hear me say this, but CMS is far more agile than private payers are," he told me Monday. "Just look at their Bundled Payments for Care Improvement initiative. They have four different payment models, three of which can be applied to 48 different patient conditions. That's 145 different payment models. No private health plan has come anywhere close to that. Most have a couple of bundled payment initiatives, if anything. What CMS has done isn't perfect by any means, but they've done far more than anybody else has.

"The biggest barrier keeping CMS from implementing better payment models isn't at CMS itself," he continues, "the problem is its Medicare Administrative Contractors. CMS doesn't actually pay claims itself, it pays claims through MACs, and the organizations with those contracts have not made the investments necessary to implement innovative payment models. Other health plans haven't either, so it's not clear that CMS could easily choose other contractors."

Despite the daunting obstacles ahead, at least the healthcare industry's "journey of a thousand miles" to value-based delivery of services has begun.