Reform Update: CMS to Expand Bundled-Payment Initiative

Modern Healthcare
June 30, 2014
Reform Update: CMS to Expand Bundled-Payment Initiative
By Melanie Evans

More hospitals, nursing homes and healthcare providers are poised to join Medicare's ambitious test of bundled payments, and the expansion underscores federal policymakers' eagerness to accelerate reforms in healthcare financing—even ahead of evidence that new models will succeed.

In recent weeks Medicare began to notify new entrants to its bundled payment initiative, in which hospitals, doctors and nursing homes gamble on their ability to deliver all of the services patients need during an episode of care for a set price.

Launched in 2013 under the Patient Protection and Affordable Care Act, the initiative is one of the law's major efforts to shift healthcare financing away from paying for each test, visit and procedure. That fee-for-service setup is widely believed to encourage doctors and hospitals to provide more care regardless of need.

The new participants will join the initiative in January, roughly a year after nearly 100 organizations started to receive bundled payments for treating all or some of four dozen conditions, such as heart failure and heart attacks, pneumonia and worn-down joints.

The scope of the expansion is unclear. The CMS declined to say how many organizations won approval to join the effort.

The success of the 100 organizations already participating, meanwhile, is unclear. An independent evaluation is underway, but results are not public, CMS officials said in a statement.

“It's early in the process,” said Rich Miller, senior vice president of managed care for North Shore-LIJ Health System, one of the first to enter into Medicare bundled payment contracts. North Shore-LIJ, Egg Harbor, New York, is testing nine bundled payments for heart disease, stroke and orthopedic surgery across four hospitals.

Nonetheless, bundled payments—and other Affordable Care Act payment reforms such as accountable care—enjoy strong federal support and a growing private-sector following.

Medicare's accountable care experiment perhaps highlights what's ahead for bundled payments.

Medicare continues to expand ACOs, which have more than tripled to nearly 350 organizations since 2012. “We expect and plan to add ACOs annually from here on out,” said John Pilotte, director of Medicare's performance-based payment policy group at an industry conference in June. In the private sector, commercial insurance companies have contracted with at least 250 ACOs, according to consulting firm Leavitt Partners.

Yet accountable care's results are limited and mixed. In the first year, 25% of Medicare ACOs were able to successfully slow health spending enough to earn bonus payments, one key goal of the payment model. The ACOs will share a combined $126 million and Medicare saved another $128 million. But the biggest player in Medicare ACOs announced plans earlier this year to exit some contracts after failing to slow spending and earn bonuses.

“We've spent a lot of money haven't shown much progress on the revenue side,” said Richard Barasch, chairman and CEO Of Universal American Corp. at an investor conference in June. “There's a limit to our public service feelings about this. We are going to scale it back to some degree.”

Still, health policy experts and industry officials say ACOs and bundled payments hold promise. “We're still believers in what this is all about,” Barasch told investors about ACOs.

For the Gulf Coast Physician Partners, which did not earn savings bonuses during its first year, the risks for embracing new payment models as they evolve is worth the opportunity to identify what works and influence future policy. “The bleeding edge and cutting edge are the same place,” said Dr. William Whibbs, the ACO medical director for the practice. “We had to be there. Somebody's got to make the rules. You want to be in the position to change things based on your experience.”

That experience has not yet delivered financial rewards, but Whibbs said it did provide valuable lessons. His ACO is jointly owned by Universal American, but Whibbs said he is hopeful that the company sees enough promise to continue its investment. “Am I worried we're going to get cut? I don't think so,” said Whibbs. “We didn't lose our shirt. We've learned. Experience is the most expensive teacher around. You get burned a little bit.”

Indeed, providers appear eager to gain experience as part of the experiments rather than get left behind. The programs are expanding rapidly.

Policy experts and industry officials say the experimentation is crucial to quickly finding a working alternative to the fee-for-service model, which fails to reward providers for reducing unnecessary services. “The current system has so many perverse incentives for not providing care efficiently that a lot of people think this is a step in the right direction,” said Neeraj Sood, a healthcare economist and associate professor at the University of Southern California, whose research includes bundled payments.

Federal health officials also face political and fiscal pressure to overhaul healthcare financing, and they have authority under the Affordable Care Act to broadly adopt new options as experiments show promise, said healthcare economist Paul Ginsburg. “These aren't your typical demonstrations,” said Ginsburg, also a professor at the University of Southern California. “They're not like research projects. It's a type of transition to a reform.”

Staggered expansion also allows organizations to get on board as they grow more comfortable with risk and are better prepared to succeed, said Brian Fuller, a director for consulting firm Avalere Health who has worked with clients to apply for Medicare's bundled payment plan.

Bundled payment's first round followed quickly after passage of the Affordable Care Act and details were limited. Many in the industry were uncertain about the federal commitment to funding the program. “The whole concept of risk was new and scary,” Fuller said. “There was a lot of fear. And there was a lot of 'this too shall pass.'” But three years later, providers' appetite for payment reform has shifted. Learning to succeed under the new models is now a “strategic imperative,” he said.

That was the experience of Signature Healthcare, a long-term care company that does business in nine states and applied to join the next round of bundled payment after sitting out the first round.

George Burkley, chief strategy officer, said the company witnessed a marketplace moving rapidly away from fee-for-service the last year. The extra time gave Signature time to prepare, and more information is now available about the bundled payment initiative.

But there is still significant uncertainty as Signature Healthcare prepares to take bundled payments. “I am not sure there is enough evidence from the first round to draw any strong conclusions,” about potential strategies for success, Burkley said. Signature Healthcare will focus on what executives believe to be essential targets, such as care coordination and the length of patients' stay in facilities.

“All this is moving so quickly,” Burkley said. “Everyone's trying to figure it out while we're doing it.”

More dealmaking to come?
A Medical Group Management Association voluntary survey found more than 4 out of 10 respondents are cozying up with other providers through formal integration agreements. More than 40% of respondents in the survey, conducted online during three weeks in January, said they have or plan to integrate with others though a merger or by joining a health system or hospital or under agreements such as accountable care organizations or independent practice associations.

What your doctor knows about what you buy (and eat)
Time to use cash for that candy bar. Data brokers are selling consumer shopping data to doctors and hospitals to clue providers in on potentially unhealthy purchases, Bloomberg reports. Consumer purchases on credit cards can be used in predictive models increasingly used by health systems to identify patient at risk for poor health or acute care.


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