Bundled Payments:The Impact on IT

April, 2014

If you remember just one thing…..

Your next CFO isn’t coming from the health industry.

Your next CFO is coming from industrial USA.

The Commoditization of Healthcare

• Great news – everything’s getting better – and cheaper– and more accessible

• Bad news – providers are a dime-a-dozen

Your New Bag of Tricks

→Differentiators in offerings→New reimbursement models

→Bundled payments

What Are Bundled Payments?

• Episode - all services provided to a patient related to a specific medical problem in a limited timeframe

• Bundle – all services provided during an episode for which “you” are financially responsible

“Fixed

price”

What Are Bundled Payments

Episodes

CABG Gall BladderColonoscopy

Joint Arthroscopy

C-Section Joint ReplacementEndoscopy Pregnancy/Deliver

What Are Bundled Payments

Chronic Conditions

Asthma DepressionCAD DiabetesCHF GERDCOPD Hypertension

The Theory

Cost savings by shifting risk Being closer to the care, the provider can drive efficiencies

Nothing new here

The Reality

→This time it’s different→Commoditization makes this possible

→That’s what’s new….for healthcare

Why Participate?

Profitable – if you can figure it out

First one to success sets the stage

Capture market share

Increase market size

If I Don’t Participate?

•Lose patients•How many patients do you have to lose to be out of business?

•30%, 20%, 10% ?

Planning/executing your project

•Getting started•Determining bundles•Contracting•Workflow•Cost management•Monitoring performance

Getting Started

• Secure project champion• Develop multidisciplinary team

– Gain physician “buy-in” early and often• Identify key success factors• Identify key performance analytics (KPIs) • Establish baselines – gather historical data• Build cost accounting models for case tracking

Determining Bundles

•You’re building a model(s)•Acute vs. chronic situations•Limiting exposure while maintaining quality •Clinical/finance involvement in design•Redeveloping care models

Determining Bundles

•Where to start?– What you’re good at– What you can control– Areas of excellence / best practices– MS-DRG if you’re a hospital– High volume

Determining Bundles

•Questions to answer– What products/services are in/out?– What have we done in the past?– What is redundant/unnecessary ?– Where can we leverage control?– What causes “outliers”?

Determining Bundles

•Many answers (currently) in claims data– The only structured data source we have– Your internal systems (billing)– Business partner (payer)– CMS data

•Start and end point (warranty)•Commercial products can help

Determining Bundles

•Example analysis1. Extract historical claims related to bundle

• Requires a claims-based bundle definition2. Calculate total reimbursement per patient

• Use target date range window (e.g., 180 days)

• This will begin to give you an idea of a target reimbursement for the episode.

Determining Bundles

•Example analysis3. Segregate model claims from potentially

avoidable claims (PAC)• Model claims are those experienced for

the “typical” patient• PACs are those that can potentially be

eliminated due to issues such as comorbidity or errors

Determining Bundles

•Example analysis4. Sum/average in ranges of 10% of target

• If target is $25,000/episode, sort by ranges of $2,500

• See example on next slide

Determining Bundles

0-5000

$5,000

$12,500

$15,000

$17,500

$20,000

$22,500

$25,000

$27,500

$30,000

$32,500

$35,000

$37,500

$40,000

$42,500

$45,000

$47,500

$50,000

$52,500

$55,000

$57,500

$60,000

$62,500

$65,000

$67,500

$70,000

$72,500

$75,000

0-5000

$5,000

$12,500

$15,000

$17,500

$20,000

$22,500

$25,000

$27,500

$30,000

$32,500

$35,000

$37,500

$40,000

$42,500

$45,000

$47,500

$50,000

$52,500

$55,000

$57,500

$60,000

$62,500

$65,000

$67,500

$70,000

$72,500

$75,000

Model Reimbursement

10000

11000

15000

17000

18000

18500

19000

19500

20000

20000

20000

21000

21000

21000

21000

21000

21000

21000

22000

21000

22000

22000

21000

21000

20000

21000

21000

24000

PAC Reimbursement

1000

1000

1000

1000

2000

2500

3000

2000

2000

10000

13000

15000

18000

21000

23000

27000

31000

35000

40000

45000

50000

55000

60000

62000

65000

67000

70000

85000

# Pats

100

400

600

1000

1400

2100

1700

1500

1250

1000

500

450

400

350

300

250

200

150

100

50

20

10

10

10

10

10

10

10

$10,000$30,000$50,000$70,000$90,000

$110,000

250

750

1250

1750

2250

Model Reimbursement PAC Reimbursement # Pats

Total Reimbursement Ranges

Total R

eim

bursem

ent

# of P

atients

Notes:• One can see that most patients fall under $30,000.• Above $30,000, PACs increase dramatically while patient count

drops equally.

Determining Bundles

•Example analysis5. This gives a general target of current

reimbursement for the episode.6. From here, drill down to determine:

• What can be eliminated from the model• Current costs / how to reduce• How to systematically identify the

outliers (those episodes above $30K in our example) to exclude in the contract.

Determining Bundles

•Redeveloping care models– Review current models– Specialty clinical protocols– Best practices…for you– Financial ramifications

Determining Bundles

• IT impacts– Identifying data sources– Data aggregation from disparate sources– Defining/acquiring/developing analytical tools– Ongoing analysis to refine bundle definition

process

Contracting

• Gainsharing and withhold models• Employer-provider contracting bypassing insurance companies

• Physician directed models – the hospital as a resource

• Including non-medical services in bundles• Billing for bundles in a fee-for-service world• Patient/provider contracts

Contracting

•Examples of excluded conditions– BMI > 33, A1C > 6.5, anemia– Significant depression/drug use/abuse

•Examples of excluded services– Inpatient/outpatient rehab

•Examples of warrantied services– Readmission related to surgical site issues

Contracting

• IT impacts– Tracking/analyzing historical data– Directing/receiving bills to/from multiple parties– Billing for bundles in a fee-for-service world

Workflow

•Clinical and IT– Operating both FFS and BP treatment models– Operating both FFS and BP billing models– Standards (and lack of) in bundled payments– The effects of bundles on analytics

Workflow

•Treating bundled patients– Different than traditional patients?– Case management– Ongoing tracking of costs (services)

Workflow

•Billing bundled patients– Effects on charge capture– Automation of different billing models

• “Dummy” 837• “Conventional” invoicing

– Effects on payment processing

Workflow

•The effects of bundles on analytics– Example: pro-rating payments

•Metric: average reimbursement for a service

– FFS: 835 ties payment to service– BP: What portion of payment is assigned

to a service?

Workflow

Workflow

Workflow

Workflow

• IT impacts– EMR identifying and tracking BP patients– Ongoing feedback on BP case progress

• Wholesale changes to charge capture?– Billing/invoice processing– Payment processing

Cost Management

•The key to profitability– Cost accounting methods and systems– Issues in tracking costs by case– Standardizing care to leverage purchasing

and reducing costs– Expanding the bundle process to FFS– Broadening the scope of services

Cost Management

•Question:– How do we know if we’re making money?

•Answer:– If revenue exceeds cost.

Cost Management

•What are costs?– The usual suspects (payroll, supplies, …..)– Direct costs (implants)– Indirect costs (administration, regulatory)

•FFS ties direct costs (implants) thru billing– Sometimes

•Reality: Healthcare lags industry in cost management

Cost Management

•Cost management/reduction issues– Understanding current costs– Cost reduction: standardizing care– Cost elimination: process change– Expanding the bundle process to FFS

• Reduces revenue, also!– Broadening the scope of services

• ↑ costs & ↑ revenue

Cost Management

•Questions– Where can we influence clinical behavior to

drive cost (down)?– How can we model volume against

profitability?

Cost Management

• Issues– Collecting granular data at the expense of

identifying key cost drivers– Support of changing BP models with lessons

learned – flexible cost accounting model– Consistency and timeliness

Cost Management

•Keys factors– Strike a balance: translate/crosswalk finance

level to/from patient level views– Line managers have info on source systems

for data feeds– Charge level costing models: time/activity

based, RVU, direct?

Cost Management

• IT impacts– Cost management system implementation– Ancillary support systems (e.g., surgical trays)– System integration

Monitoring Performance

•Continuous improvement– Case tracking/intervention avoids adverse

exposure– Quality measures/KPIs– Ongoing analysis/corrective action for outliers– Using results to renegotiate payer contracts– Who owns the results? Actionable but who

takes action?

Monitoring Performance

• Questions:– Are we making money?

– Where are the “exceptions”/how to avoid?

– How can we squeeze/eliminate costs?

– What are the opportunities for more revenue?

– Are my “customers” happy?

– Can we renew our contracts with better terms?

Monitoring Performance

•Examples of Clinical KPIs:– Readmission rates

– SCIP scores

– Patient otutcomes

Monitoring Performance

•Examples of Financial KPIs:– Average cost/case, margin/case

– ROI

– Cost reduction metrics

– YoY, per case metrics showing change, not snapshots in time

Monitoring Performance

•Examples of Customer KPIs:– Satisfaction index

– Outcomes

Monitoring Performance

• IT impacts– Exception reports/alerts in “real time”– Regular/on-demand performance analysis

reports– Quality measures: capture, analyze, report

Questions?

Thank You!

Sheldon Hamburgershamburger@thearistonegroup.com

(248) 613-7166