Bundled payments involve reimbursing healthcare providers for all services provided to treat a patient's condition within a limited timeframe. Participating in bundled payments allows providers to potentially profit if they can reduce costs through care standardization and efficiencies. However, it also means taking on financial risk. Key steps for providers in implementing bundled payments include determining which clinical episodes to bundle, contracting with payers, redesigning care workflows, implementing cost management systems, and continuously monitoring performance metrics. Transitioning to bundled payments will require significant changes to IT systems for tracking patients, costs, billing, and analyzing outcomes and financial performance.

1. Bundled Payments:
The Impact on IT
April, 2014

2. If you remember just one thing…..
Your next CFO isn’t coming from
the health industry.
Your next CFO is coming from
industrial USA.

3. The Commoditization of Healthcare
• Great news
– everything’s getting better
– and cheaper
– and more accessible
• Bad news
– providers are a dime-a-dozen

4. Your New Bag of Tricks
→Differentiators in offerings
→New reimbursement models
→Bundled payments

5. 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

6. What Are Bundled Payments
Episodes
CABG Gall Bladder
Colonoscopy Joint Arthroscopy
C-Section Joint Replacement
Endoscopy Pregnancy/Deliver

7. What Are Bundled Payments
Chronic Conditions
Asthma Depression
CAD Diabetes
CHF GERD
COPD Hypertension

8. The Theory
Cost savings by shifting risk Being closer to the care, the
provider can drive efficiencies
Nothing new here

9. The Reality
→This time it’s different
→Commoditization makes this possible
→That’s what’s new….for healthcare

10. Why Participate?
Profitable – if you
can figure it out
First one to success
sets the stage
Capture
market
share
Increase
market
size

11. If I Don’t Participate?
•Lose patients
•How many patients do you have to lose to
be out of business?
•30%, 20%, 10% ?

12. Planning/executing your project
•Getting started
•Determining bundles
•Contracting
•Workflow
•Cost management
•Monitoring performance

13. 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

14. 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

15. 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

16. 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”?

17. 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

18. Determining Bundles
•Example analysis
1. Extract historical claims related to bundle
• Requires a claims-based bundle definition
2. 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.

19. Determining Bundles
•Example analysis
3. 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

20. Determining Bundles
•Example analysis
4. 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

21. Determining Bundles
0
500
1000
1500
2000
2500
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000 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
#ofPatients
TotalReimbursement
Total Reimbursement Ranges
Model Reimbursement PAC Reimbursement # Pats
Notes:
• One can see that most patients fall under $30,000.
• Above $30,000, PACs increase dramatically while patient count drops
equally.

22. Determining Bundles
•Example analysis
5. 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.

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

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

25. 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

26. 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

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

28. 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

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

30. Workflow
•Billing bundled patients
– Effects on charge capture
– Automation of different billing models
• “Dummy” 837
• “Conventional” invoicing
– Effects on payment processing

31. 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?

32. Workflow

33. Workflow

34. Workflow

35. 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

36. 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

37. Cost Management
•Question:
– How do we know if we’re making money?
•Answer:
– If revenue exceeds cost.

38. 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

39. 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

40. Cost Management
•Questions
– Where can we influence clinical behavior to
drive cost (down)?
– How can we model volume against
profitability?

41. 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

42. 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?

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

44. 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?

45. 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?

46. Monitoring Performance
•Examples of Clinical KPIs:
– Readmission rates
– SCIP scores
– Patient otutcomes

47. 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

48. Monitoring Performance
•Examples of Customer KPIs:
– Satisfaction index
– Outcomes

49. Monitoring Performance
•IT impacts
– Exception reports/alerts in “real time”
– Regular/on-demand performance analysis
reports
– Quality measures: capture, analyze, report

50. Questions?
Thank You!
Sheldon Hamburger
shamburger@thearistonegroup.com
(248) 613-7166