Bundled Payment

CMS Bundles: Why Leave Millions on the Table?

March 28, 2017 12:45 pm

In a matter of weeks, hundreds of hospitals will receive their first bonus checks or penalty notices from the Centers for Medicare & Medicaid Services (CMS) related to its Comprehensive Care for Joint Replacement (CJR) bundled payments program. Although each organization has its own, unique circumstances and expectations for participation in the program, there is a generalized uncertainty about exactly what awaits. Some providers will be pleasantly surprised, and others will be left wondering what happened and why.

Surprisingly few organizations realize that they stand to gain or lose up to $5 million annually (for a hospital with 750 episodes per year), with health systems that have the largest programs standing to lose twice that amount. a These numbers represent a significant opportunity for CFOs and service-line leaders accustomed to operating on tight margins.

Decoding the 1,000-Page Mystery

Interviews conducted with 100 health system executives and physician leaders in the past year about their approaches to bundles disclosed that the enormous variation in performance among hospitals in the CJR bundle program is mirrored by an equally large variation in understanding of the implications for individual hospitals. That’s perhaps not surprising given that the CJR regulations run to more than 1,000 pages. Few have scoured the fine print—partly because bundles have been discussed extensively at a high level, and partly because the mandatory nature of the CJR program has led to a wait-and-see approach on the part of healthcare organizations.

Healthcare organizations may be surprised to learn that the maximum bonus or penalty a hospital stands to receive under the CJR model is 40 percent of its typical DRG fee for the surgery. The implication is that this potential swing is more than 10 times that of existing quality (e.g., readmission) and satisfaction incentives, which typically amount to only a small percentage of the fee.

Moreover, orthopedic surgeons can be paid a bonus of 50 percent of the Medicare-approved amounts under Physician Fee Schedule if sufficient savings are generated in the CJR program by the hospital where the operation was performed. As a “CJR collaborator,” the surgeon may enter into a gainsharing arrangement with a CJR hospital and, under the terms of that arrangement, receive that bonus payment—but only if there are savings to be shared.

Understanding the scale of these incentives is important for health system executives not only because margins are already razor thin, but also because the new incentives have profound implications for aligning physicians and hospitals.

Approaches by Top Performers

The best-practice approach to CJR is with a laser focus on delivering the Triple Aim of high quality, superior satisfaction, and lowest cost for every patient. From a cost perspective, organizations that exemplify this approach have taken three steps to minimize total billings:

  • They have acquired an understanding of variations in care workflows at the individual patient, clinician and facility level to enable clinicians and care delivery partners to improve their performance
  • They prescribe precise, personalized care journeys by stratifying all patients for risk with the goal of producing a transparent care map that everyone can plan against from before surgery through full recovery
  • They monitor and coordinate care in (near) real-time to identify and address issues before or as they occur

The exhibit below illustrates the impact these three steps can have on the billings for a specific patient. In this not-uncommon example drawn from CMS data for the Mid-Atlantic region, the patient has the standard inpatient stay and is then discharged to a skilled nursing facility (SNF) before receiving some home health support. Unfortunately, this patient has a readmission, which leads to another SNF stay. Overall, this patient ends up with $36,100 in total billings.

Total Joint Replacement Inside and Outside of a Bundle

By contrast, proactively managing the same patient using the steps outlined above results in a shorter SNF stay, avoids the readmission, and—as a trade-off—results in slightly higher home health use. The hospital thereby moves from a loss of $6,100 to a gain of $4,500 for that single patient in the CJR bundle.

Historically, hospitals have lacked real-time visibility into their performance. What once took several weeks of analysts’ time and pivot tables can now be assessed, in detail, almost instantly. It is now possible for health systems to compare the performance of each of their clinicians and care delivery partners against that of anyone else in the country, predicting exactly what their bonus or penalty will be and why.

Relatively few hospitals have equipped themselves with the comparative benchmarking to assess where they stand relative to others in their region. It is exactly this kind of granular knowledge, however, that will differentiate the winners and losers under bundled payment models. Knowing how a health system compares on certain metrics, as well as which types of patients need more support up front, can help health system leaders identify where improvements are needed. One health system, for example, learned that their patients undergoing total joint replacement had frequent fluid/electrolyte issues, adding expense, so a group of surgeons adjusted their pre-operative protocol to allow Gatorade or apple juice a few hours before surgery, thus helping to curb the issue. Looking at 2014-16 CMS data for all CJR hospitals, it is apparent that those who have proactively made changes to address their episode performance have already benefited from a gain of $2,000 to $3,000 per patient over the previous year.

Long-Term Ramifications of a Short-Term Strategy

Just as the introduction of DRGs in the 1980s radically changed inpatient care, bundles are poised to do the same across episodes of care. Healthcare organizations that embrace value-based payment models will thrive as commercial and government payers preferentially drive volume to the most efficient providers. Indeed, the scale of incentives offered is sufficient to suggest that organizations can benefit substantially from leveraging better data to improve clinical workflows and patient care.

Providers that invest in effectively navigating bundles also may attract better physicians, while others will find their most productive surgeons moving their volumes to hospitals that deliver more efficient care and generate bigger savings and therefore larger bonuses. 

Jean Drouin, MD, MBA, is CEO and founder of Clarify Health Solutions, San Francisco.


a. Numbers and calculations cited here are derived from Clarify Health’s proprietary analytics engine, which runs on data from more than 2 million total joint replacement episodes.


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