Is the Bundled Payments for Care Improvement (BPCI) Program the Answer to Rising Healthcare Costs?

OCT 19

Following the ratification of the Patient Protection and Affordable Care Act (PPACA) in late June of this year, health systems have been under increased pressure to find answers to pressing questions such as how best to prepare for shared-risk reimbursement models. Health networks and physician groups of all sizes have been very vocal about the perceived far-reaching consequences of current CMS proposals. In fact, a recent survey administered by the Medical Group Management Association (MGMA) indicated that the imminent transition from our current fee-for-service (FFS) model to a healthcare provider risk-share model is among the top pressing issues facing the care delivery sector today. Many recognize the potential for improved clinical outcomes and lowered medical spend. However, some critics have issued warnings about the unintended consequences of these proposals, citing a risk that clinicians may be incented to provide sub-optimal outcomes by administering less care than necessary in order to reap financial gains.

A prevailing theory amongst healthcare thought leaders is that a root cause of rising healthcare costs is the fragmentation, and subsequent lack of coordination, present among primary and ancillary service providers. To address the misalignment of the healthcare system with the needs of the consumer, CMS began the Bundled Payments for Care Improvement (BPCI) initiative, and proposed four bundled payment models (listed here).

Although there are currently some Medicare FFS payment systems bundling payments for multiple services (e.g., hospital discharges, physician surgical services, dialysis treatments, and home health services), a key differentiator exists between CMS’s new proposals and these legacy payment systems. The difference (also the key component) of the BPCI model is that the bundled payments’ reach extends beyond individual providers. This crucial element will be a catalyst, spurring improved collaboration and care coordination initiatives among hospital networks, paving the way for the wide-spread adoption of Accountable Care Organizations (ACOs).

To facilitate adoption of the BPCI among networks of various organizational structures, CMS has outlined both retrospective and prospective models (three and one, respectively). Each bundled payment alternative provides a strategy for consolidating the payments made to various providers as a result of a given episode.  As a result, CMS estimates that the shared-saving program will reduce Medicare Payments by approximately $5 billion over the next ten years.

Health networks are given a strong financial incentive to adopt the proposed reimbursement changes. As the cost reduction targets are met or exceeded, the network is permitted to share in the savings achieved by means of a special remittance from CMS. The advantage of such programs is clearly demonstrated by the pilot programs for select episodes that have shown encouraging results.

Health networks seeking to take advantage of the shared-savings associated with the BPCI initiative must be prepared to address an assortment of implementation challenges. According to the McKinsey Center for U.S. Health System Reform, one such challenge is the significant up-front investment of time and funds required to align existing revenue cycle, contracting, and care coordination capabilities with the requirements of the new model.  An additional point-of-note is that BPCI participants will be required to reimburse CMS for the difference between the agreed-upon target reimbursement amount and incurred costs if the cost of care increases beyond baseline expectations (with some risk adjustment).  That being said, it is our belief that these barriers can be deftly navigated by means of a well-coordinated strategy, to the benefit of all stakeholders.

Late last month, CMS’s dedicated center for PPACA implementation, the Center for Medicare & Medicaid Innovation (CMMI), enlisted the help of private sector experts to review the applications submitted to date by provider networks to participate in models 2, 3, and 4.  The experts reviewed the feasibility and reasonableness of each proposal within the confines of the four models and provided recommendations for improvement. CMMI will continue to work with the candidates throughout the month of October to address any issues or questions raised through the review process. At an undetermined point in the near future (likely 2013), those candidates whose proposals have been approved by CMMI will face one more vetting process before full implementation will begin.

In response to these and other aspects of the PPACA, we have seen marked consolidation among leading hospital networks. Notably, Humana, Aetna, and Cigna (who now has 42 ACO networks) have been increasing their provider footprints to augment their offerings- a trend we expect to continue for some time.

Let us know what you think.

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Anthony Nanne