Real-World Bundling

Philip Betbeze, for HealthLeaders Magazine , September 10, 2009
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Shared responsibility for outcomes should cut costs and boost market share.

Hospitals face transformational changes in order to protect themselves from the new risks endemic to a "bundled" payment system—one of the many outcomes some are predicting from health reform legislation. Unlike more controversial ideas on how to reform healthcare into a sustainable economic sector, the idea of bundling reimbursements to providers has gained steam both in Congress and at CMS. But to prove that bundling payment for Medicare Part A and Part B will make for better patient outcomes and cut costs, CMS embarked this year on an ambitious acute care episode demonstration project that should determine its viability. From CMS's perspective, progress toward achieving three goals will determine the success of the program:

  1. Improve quality of care through consumer and provider awareness of price and quality information.
  2. Increase collaboration among provider and health systems.
  3. Reduce Medicare payments for acute care services using market mechanisms.

While providers may share those goals, at least one of the participants sees local and regional competitive incentives as well. The demonstration project itself promises to reshape the regional markets in which it is introduced over the three-year period of the demonstration.

In a competitive bidding process, Denver's Exempla St. Joseph Hospital, a 480-staffed-bed teaching tertiary medical center, was one of four hospitals chosen by CMS under the cardiovascular ACE demonstration (one provider is also participating in orthopedics).

Exempla St. Joseph President and CEO Robert A. Minkin says his hospital chose to bid for the project for a variety of reasons, but that chief among them was that participation would allow the hospital to develop unused capacity in its heart program and achieve a greater level of market dominance in cardiovascular services.

"We had something to offer the CMS folks with respect to a highly mature clinically excellent program that was well integrated with our physicians already," he says. "We felt as though Medicare could demonstrate an actual benefit to patients from bundling care and moving patients from smaller programs to a clinically excellent larger program."

Aggressive bidding
Minkin says Exempla St. Joseph was aggressive with its bid because the hospital's leadership felt it needed to stand out from other bidders by "allowing CMS to demonstrate to themselves an immediate savings if they were to divert patients to St. Joseph's program."

Minkin and his leadership team had done their homework.

In Colorado, he says, 12 hospitals are doing cardiovascular surgery with relatively low annual patient volumes of between 50 and 120. The capital and staffing costs required to operate such low-volume facilities creates immense incremental costs across the system. So in diverting Medicare patients into high-volume, high-quality centers, the patient gets high-quality, low-cost service.

"The only real loser in this process is the small community hospital that is struggling to be a tertiary center by trying to do more cardiac surgery," he says. "If their 120 cases a year drops down to 60 because 60 patients go into a demonstration project, they may choose to close their program. My personal opinion is that's where the waste is."

Shared savings
One of the linchpins of the project is the idea of shared benefit accruing to all stakeholders. Beneficiaries who choose to participate in the demonstration are entitled to up to 50% of the cost savings that accrue to Medicare.

"It isn't cutting reimbursement to hospitals or doctors," Minkin says. "It's cutting waste by endorsing partnering with doctors and hospitals so we're not competing and that goal is accomplished by the bundling element."

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