Guest Commentary: A value-based endorsement of bundled payments

Whether through repeal and replace or rebrand, changes to the Affordable Care Act are inevitable in 2017. One often mentioned ACA target is the Center for Medicare & Medicaid Innovation, Medicare's test-bed for value-based payment models.

We also know that value-based care has long had bipartisan support. The concept was tested during the George W. Bush administration, and such models as bundled payments—single, fixed payments for services by multiple providers during an episode of care—also have bipartisan backing and momentum.

Bundling was introduced by Medicare through a pair of voluntary demonstrations focused on orthopedic and cardiac procedures: 2009's Acute Care Episode (ACE) and 2013's Bundled Payment for Care Improvement (BPCI), which encompasses acute care and post-acute care. Rapid adoption of BPCI turned into policy through the April 2016 Comprehensive Care for Joint Replacement (CJR), a mandatory initiative based on BPCI's Model 2. Through CJR, approximately 800 hospitals were placed into hospital, physician and post-acute 90-day bundles.

Commercial payers have also embraced bundling, including the nation's largest private payer, UnitedHealth Group, which announced expansion of its bundling initiatives.

While bundling presents an opportunity to enhance care delivery across the continuum, analysis of its effectiveness has been mixed. Moreover, healthcare lacks best practices to guide providers and payers in redesigning care for joint replacement bundles.

A new Penn Medicine peer-reviewed study begins to address this gap. The JAMA Internal Medicine article—an industry-first analysis combining internal hospital cost and Medicare claims data to identify drivers of hospital and post-acute joint replacement bundle savings—provides an unprecedented look into where savings come from and what CJR hospitals may consider setting as aspirational targets.

While average Medicare joint replacement payments increased approximately 5% nationally and decreased 8% for BPCI participants, San Antonio-based Baptist Health System achieved a 20.8% per episode decrease, according to the research. The five-hospital network also reduced prolonged length of stay, a validated measure of surgical complications, by 67% while patient severity remained unchanged.

Baptist's savings, which exceeded $11 million, were split equally between acute and PAC across both ACE and BPCI, with the majority of internal hospital savings from a 29 percent implantable device price decrease, double the national trend. PAC spending was reduced by $4.5 million during BPCI (outpacing acute reductions 3-to-1), driven by declines of 54% and 24% at inpatient rehabilitation and skilled-nursing facilities, respectively.

Though its previous bundling experience positively affected success, Baptist Health applied a series of strategies that can be implemented immediately, even by providers with no bundling experience.

Take the organization's approach to reducing implant costs. Since physicians are data-driven by nature, system leadership leveraged data to engage surgeons in addressing product selection, reviewing medical evidence to identify clinically equivalent implants. With this data, Baptist determined a lower target implant price and contracted with manufacturers that met that price, highlighted by an online process through which manufacturers anonymously bid against each other.

The health system not only reduced implant costs by more than $4 million but also retained surgeon choice, findings that are particularly noteworthy since all hospitals should be similarly incentivized under DRG payment.

Improvements have been sustained over time. Savings far outpaced BPCI and national trends while occurring across multiple programs over six years, mitigating the chance of other factors driving the results.

Post-acute savings were achieved once providers had “skin in the game.” The decreases occurred when post-acute care was bundled in BPCI, a finding not observed in other BPCI analyses. This suggests physicians and hospitals are likely to redesign care when financially incentivized, reinforcing the importance of careful bundle design.

Value-based models such as bundled payments have the potential to enhance care delivery continuum-wide, but the industry lacks a blueprint for bundling design. The successes and lessons learned from bundling participants such as BHS offer guidance for providers and payers, as well as a new administration considering decisions that will impact the health of patients and communities nationwide.

Dr. Amol Navathe is an assistant professor of health policy and medicine at the University of Pennsylvania and co-editor-in-chief of Healthcare: The Journal of Delivery Science and Innovation; Gary Whittington is chief financial officer at Baptist Health System, San Antonio; Dr. Joshua Liao is a staff physician at the University of Pennsylvania Department of Medicine and a fellow at the Leonard Davis Institute of Health Economics; and Richard Bajner is managing director of Navigant.