Money management: hospital penalties may increase

October 18, 2016
In April of this year, the Centers for Medicare and Medicaid Services (CMS) officially launched mandatory participation for approximately 800 hospitals under Medicare’s Comprehensive Care for Joint Replacement (CJR) reimbursement model.

This represents the first time that CMS has declared any form of bundling mandatory, demonstrating Medicare’s commitment to shifting the industry toward an increasingly value-based reimbursement model and holding providers responsible for both quality of outcomes and cost of care along the entire care continuum.

Enforcement of the mandate is double-sided — providing for both rewards and consequences tied to successful implementation. Providers who can utilize Alternative Payment Models (APMs) stand to be rewarded, with the Medicare Access and CHIP Reauthorization Act (MACRA) providing a 5 percent annual bonus payment to physicians participating in APMs.

In contrast, hospitals that do not successfully adopt the CJR model are at risk for serious financial penalties that increase over time. Ultimately, the progression toward mandatory bundled payments for specific populations represents the next wave of a payment reform program that continues to shift the burden of financial risk and responsibility onto the backs of providers and patients.

The path of risk migration
While a handful of national providers like Kaiser and Geisinger have been established players in the risk management game for a long time, the majority of providers have been scrambling over the past few years to assemble the strategies, infrastructure, analytics capabilities, culture and operating effectiveness required to successfully navigate their steadily increasing risk. The list of changes that have shifted risk toward providers since 2010 is long, and while the annual growth rate of health care costs in the U.S. did see a temporary decline, costs are still rising, and the 5.3 percent increase in the rate of spending in 2014 was almost double that of 2013.

Consider the following:
Insurance exchanges: payers are losing billions of dollars.
The federal government is subsidizing payer losses, but that may come to an end.
The increasing copays and deductibles are often not able to be met by patients.

For accountable care organizations:
Shared savings pools are derived from decreasing up-front reimbursement.
In 2015, only 31 percent of ACOs generated savings above their minimum savings rate. Like the other recent changes that came before it, the health care industry will doubtless spend many millions of dollars trying to figure out how to manage and scale bundled payment models, with no guarantee that the model will improve outcomes or lower costs to providers and patients.

For the CJR specifically, it is paramount that hospitals and health systems ensure clean, quality data across three months of joint replacement surgical care. All costs for the surgery and associated care are reimbursed to the hospital via a single payment. Then, the organization is responsible for properly and effectively distributing it. Hospitals that hold costs below the target price keep the difference.

Those that don’t must repay Medicare. To profitably manage the bundled payment model, it is critical to gain full transparency across the entire spectrum of a health system's costs, including labor and supplies. The ability to understand the clinical, operational and financial data at the line-item level within an entire CJR treatment plan is essential. The data must be relevant, clean and accurate across all providers within the bundled payment episode. According to one hospital chief financial officer, “If I don’t get my financials right, I could lead the hospital down a revenue loss path. Because this is mandated bundling, the overall costs will eventually come back to either bonus us or penalize us.”

Key considerations
Arguably, bundled payments may have less to do with the concept of great quality care and more to do with being able to efficiently manage care within a fixed fee, allowing CMS to better control its costs. Data availability and governance is crucial to succeeding in a bundled payment model. Not only must all relevant data be accurate and complete, it must also be tracked throughout multiple care settings across multiple disparate HIT systems. This has many providers aggressively pursuing merger and acquisition activity in the post-acute sector. Ironically, while many health systems were divesting themselves of skilled nursing and home-health agencies over the past 10 years, there’s now renewed pressure to re-acquire those same assets in order to regain control of patient care and patient data post-discharge (even though the business units themselves may still yield little to no profit).

Once data is obtained and continuity achieved, appropriate financial and quality analytics must be applied. Traditional revenue cycle analytics are no longer enough. As hospitals shift toward value-based care models, the utilization of analytics becomes more important, even vital, for survival. These new analytics will require detailed transactional data pertaining to clinical outcomes, revenue outcomes, costs and patient satisfaction. Organizations seeing early success in managing bundles are taking a proactive, data-driven, multi-disciplinary approach to analytics, garnering input from finance, revenue cycle, payer contracting, physician leadership, nursing, supply chain, pharmacy, decision support and the CMIO.

About the author: Timothy Lantz is an executive with a background in finance and operations. He possesses over 15 years of leadership and consulting experience and serves as senior vice president at Sentry Data Systems.