CJR Is Just the Beginning—Sg2 Predicts More Bundles to Come

As hospital administrators are preparing for both the launch of the Comprehensive Care for Joint Replacement (CJR) Model and the Oncology Care Model (OCM) this spring, forward-thinking executives are already anticipating the next episodes of care to be the focus of CMS value-based payment initiatives. CJR alone is projected to result in a total savings of $343 million over the next 5 years. While its compulsory nature makes CJR unique from previous episode- and value-based initiatives, in a few years it will likely be remembered as just one of a series of progressive actions by CMS to shift providers away from fee-for-service compensation.

There isn’t a lot of argument in the Sg2 community as to whether CMS will introduce additional bundled payment programs. CMS recently announced that it has already made good on its plan to convert 30% of all Medicare fee-for-service payments into alternative payment models by 2016, and it is charging headlong into reaching the 50% target by 2018. The impacts of the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA) and the introduction of the Merit-Based Incentive Payment System (MIPS) and the Alternative Payment Models (APMs) in 2019 also will spur the creation of many new value-based programs. The debate has now shifted to when the next big announcement will occur and which episodes will most likely be affected.

While it is impossible to be certain which episode(s) of care will be selected next by CMS, proactive organizations can begin preparing by concentrating on a few leading indicators, narrowing their efforts down to those episodes that are high in cost, utilization and variation.

High-Cost, High-Utilization Episodes Are Ripe for Bundled Payment
According to CMS, hip and knee replacements were the most common inpatient surgeries for Medicare beneficiaries in 2014. History has shown that CMS will focus on care episodes that are both high cost and high volume—particularly those that extend far beyond the walls of the hospital. In our analysis of hospitals participating in CJR, we found that a majority of charges associated with a total joint replacement occur in the post-acute care (PAC) setting. Hospitals should analyze their PAC costs to pinpoint areas of opportunity.

To identify additional episodes with similar characteristics, we examined Medicare’s Inpatient Prospective Payment System (IPPS) volumes in 2015 and determined the most common DRG-based charges by volume. For those high-ranking episodes, we then evaluated the proportion of charges that stemmed from hospital (DRG-based) charges vs the total episode cost. The episodes that ranked highest in terms of both total volume and the percentage of nonhospital charges were: pneumonia, chronic obstructive pulmonary disease (COPD), heart failure, spinal fusion and psychoses.

Geographic Variation, High Use of Community and Post-Acute Services Are Also Key
Bundled payment programs are most appropriate for care episodes with costs that vary significantly by market that also involve significant care utilization in the community and post-acute settings.

In its CJR announcement, CMS listed geographic variability of cost and quality as a significant factor in its decision to focus initially on lower extremity joint replacement. According to CMS, the rate of complications (specifically infections and implant failures after surgery) was more than 3 times higher at some locations than others. Costs also varied dramatically by market—the average Medicare expenditure for surgery, hospitalization and post-acute recovery ranged from $16,500 to $33,000 across the US.

In general, increased variation is likely for any care episode that requires transitioning care among multiple providers, particularly in the nonhospital setting. Because (in-hospital) DRG payments are essentially established, reduced utilization in nonhospital settings will generate the most cost savings.

A 2011 Dartmouth Atlas report on post-acute care for Medicare beneficiaries evaluated posthospital discharge patterns for key care decisions associated with reductions in 30-day readmission rates. These included likelihood of early physician (primary care and specialist) follow-up after discharge; hospital utilization as a method of treatment; and the use of the emergency department. Researchers identified substantial regional variation in these factors for patients treated for hip fractures, congestive heart failure, heart attack and pneumonia.

When we evaluated variation in post-acute care utilization across multiple Sg2 CARE Families, it came as no surprise that musculoskeletal injuries and conditions targeted by CJR nearly topped our list based on their associated high variation in post-acute care settings, providers and care decisions. We also identified substantial variation in post-acute care for chronic medical conditions such as congestive heart failure, pneumonia and COPD, indicating that these conditions may become targets of future value-based payment models.

BPCI Participation Signals Areas of Potential Success
Participation in CMS’s Bundled Payments for Care Improvement (BPCI) initiative also may be a leading indicator of future value-based initiatives. Through their own analysis and continued participation in BPCI, hospitals have provided some insight into those episodes where bundled payment models may be most effective. A review of recent BPCI participation offers us a breakdown by episode type for participating hospitals and physicians. (These were the episodes for which participants saw the greatest opportunity to reduce cost and assume risk.) More than 1,500 hospitals, physician groups and post-acute providers participated.

Prepare for the Next Wave of Value-Based Initiatives
Given CMS’s high target for value-based payments combined with the need for additional value-based programs to support APMs under MACRA, Sg2 is anticipating new program announcements from CMS soon. Health care leaders interested in enhancing their Systems of CARE should consider high-volume, high-cost episodes that demonstrate significant variability.

CJR-like programs that address high-cost surgical procedures followed by extended episodes of post-acute care provide one path for reducing fee-for-service payment. In fact, our orthopedic team forecasts that bundled payment will become the predominant method of reimbursement for total joint replacement by 2021. However, recognizing that CMS is interested in testing a variety of tactics to move away from fee-for-service, we believe that long-term chronic conditions such as congestive heart failure, pneumonia and COPD will become a popular target for future payment reform. These diseases all exhibit high volumes, high costs and high variability, making them ripe for bundled payment.

To prepare for the next bundled payment initiative, or simply to improve outcomes, facilitate care coordination and lower costs, Sg2 encourages organizations to enhance their Systems of CARE beyond the walls of the hospital. To do so, consider the following strategies.

  • Develop robust care coordination services that begin prior to hospitalization and extend through hospitalization (when required) until the patient completes their post-acute activities.
  • Create strategic partnerships with physicians and post-acute providers to enable narrow networks that emphasize quality outcomes and efficient utilization of services.
  • Improve discharge planning.
  • Employ virtual health technologies to improve coordination with patients, family members, caregivers and others within patients’ support networks.
  • Improve utilization of electronic medical records and your interfacing with specialty-focused applications to track outcomes and patient compliance.

Sg2 Research Associate Ryota Terada contributed to this post.

Sources: Better, smarter, healthier: In historic announcement, HHS sets clear goals and timeline for shifting Medicare reimbursements from volume to value [press release]. January 26, 2015; Comprehensive Care for Joint Replacement (CJR) Model. November 16, 2015; Goodman DC et al. After Hospitalization: A Dartmouth Atlas Report on Post-Acute Care for Medicare Beneficiaries. The Dartmouth Institute: 2011; Impact of Change® v15.0; IMS LifeLink® PharMetrics Health Plan Claims Database 2011, 2013; The following 2013 CMS Limited Data Sets (LDS): Carrier, Denominator, Home Health Agency, Hospice, Outpatient, Skilled Nursing Facility; The Nielsen Company, LLC, 2014, 2015; Sg2 Analysis, 2016.

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As of February 11, 2016, Vizient, Inc. has completed its purchase of MedAssets Sg2 and spend and clinical resource management segments from Pamplona Capital Management, LLC. MedAssets revenue cycle business will continue to operate as a wholly-owned subsidiary of Pamplona Capital Management LLP.

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