[ SourceBook ]Purchasing Power    The Benefits of                                                                         ...
[ SourceBook ]Purchasing Powercontinued from page 8the episode. The discount rate is determinedthrough analysis and the es...
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Q4 2012--GPOs

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Q4 2012--GPOs

  1. 1. [ SourceBook ]Purchasing Power The Benefits of By Gunter Wessels, PhD Bundled Payments Wessels is a partner at Total Innovation Group Inc., a consulting firm specializing in health care. Clients of his firm include policy makers, payers, providers, group If you’re a supply chain leader and you can help the program is to create cost purchasing organizations implement a bundled payment program, it’s hard to efficiencies through align- and supplier companies, find a reason not to do it. A gain-sharing program that ment. In past demonstration both in the United States is focused on creating mechanisms to affect physician programs, the outcomes have and internationally. preference and improve alignment can make a huge been very good. Some facilities You can contact him at impact. By offering a financial incentive from the hos- reduced episode costs by as gunter@tigi.net. pital to the physician, the program can much as 70 percent. Some help negate the effect of vendor-driven device decisions. The first three bundled payment models are retrospective payment arrange- facilities As part of the Patient Protection and ments where providers are paid a discounted Medicare reduced Affordable Care Act (PPACA), last year the Centers for Medicare and Medicaid fee-for-service rate. Model 4 is based on prospective payments. Providers may choose to implement more episode Services (CMS) presented the “Bundled than one model. costs by Payments for Care Improvement” ini- tiative. The program creates a series of Providers apply for participation in the program by doing analysis and defining “care-episodes,” which as much as positive incentives that encourage pro- can be virtually any high-volume inpatient episode. 70 percent. vider innovation in cost reduction, clinical integration and care management. Here’s how the models work: The program has four versions, called With Model 1, the episode of care is an inpatient stay models. The models function by taking a discount in a general acute-care hospital. Doctors and hospitals and focusing on creating cost efficiencies. Gains can are paid as normal (physicians under Part B, Hospitals Thinkstock be shared among providers, but losses are limited under Part A), but at a negotiated discounted rate for by a fixed discount and normal billing. The focus of continued on page 128 The Source | Fourth Quarter 2012
  2. 2. [ SourceBook ]Purchasing Powercontinued from page 8the episode. The discount rate is determinedthrough analysis and the establishment of atarget price for the episode. Procedures andcases are then performed over the demonstra-tion period (at least one year). During the program period, if the providerhits or performs better than the target price,gains can be shared. These gains will comefrom cost reduction. For example, if a joint replacement sur-gery is currently reimbursed at $7,500, butthe provider, in collaboration with physi-cians, determines that the total case can bedone for $6,500, that price could be offered. Ifaccepted, procedures would be performedand the hospital would be paid the negotiatedrate, $6,500 in this example. Physicians would be paid their professionalfee (also discounted.) However, if the costof the procedure is driven down to $5,000,the hospital could legally share those costefficiency gains with physicians, as incentive payments or bonuses. possible. For example, robotic surgery has higher acute-care costs, With Model 2, the episode of care involves an inpatient stay and but claims lower downstream costs.post-acute-care for a minimum of 30 or 90 days after discharge Model 4 is the only prospective model in this program. This(at the provider’s election). The aim of this model is to produce model establishes a comprehensive bundled payment upfront.savings by reducing cost in two episodes, opening the opportunity Gain sharing is still allowed, but CMS proposes to pay a singleto apply a potentially more costly intervention in the acute-care fixed amount for all services by all providers during the stay. Thesetting that reduces downstream costs. Overall gains can be shared hospital would pay the physicians and all other providers out ofamong providers. the bundled payment and submit “no pay” claims to Medicare for Model 3 focuses on post-acute providers and aims to reduce record-keeping purposes.readmissions. Gains are also available for sharing between providers. It’s important to remember that many of these case categories Overall, the bundled payment demonstration projectare marginally profitable or already unprofitable. Taking reduced seeks to do two things:reimbursement would therefore seem like a bad idea. However, if 1. Allow providers to use their own financial resources to re-shapecoordinated action could have an effect on costs, and the prohibi- physician and partner organization behavior without violating fraud and abuse regulations.The program sets up a safe zone 2. Allow the CMS to learn from provider innovations in coordina- tion, clinical integration and patient care management.for experimentation .. .It opensthe opportunity for greater The program sets up a safe zone for experimentation and allowsfinancial alignment between sophisticated providers to raise the bar for everyone by demonstrat-physicians and their host ing best practices. It opens the opportunity for greater financialfacilities to drive down cost. alignment between physicians and their host facilities to drive down cost. The path forward is clear. The CMS intends to use these innova-tion against paying physicians to change their behavior is lifted (as tions to structure future payment systems. By allowing the providerunder this program), opportunities abound. Right now, using a less community the opportunity to participate in the evolution of morecostly procedure tray, implant and more conservative intervention efficient payment systems, rather than oppose arbitrary cuts, theare all uninteresting to many physicians since their reimbursement CMS is attempting to mitigate resistance. Participating in the de-incentives are aligned with the opposite behavior. Similarly, expos- velopment of our shared future is recommended—and prudent.ing the health system to the claimed benefit of a more expensive For more information, visit www.innovations.cms.gov/initiatives/intervention in one setting that reduces costs in another is also bundled-payments/index.html. •12 The Source | Fourth Quarter 2012

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