Guest Columns

Large cities show wide range in episode spending

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Sally Rodriguez
Sally Rodriguez

Over 6,000 healthcare providers are voluntarily testing bundled payments for episodes of care, adding to the momentum around episode-based, accountable care models in Medicare. One of the key goals of the Bundled Payments for Care Improvement demonstration is to reduce the variation in the cost of an episode of care. Because much of that variation occurs in the care provided after a hospital stay, post-acute care is a target for bundle holders looking to drive down episode costs.

Avalere Health recently conducted an analysis of Medicare Part A data from the ten most populous cities in the United States (as defined by Metropolitan Statistical Areas). For 90-day episodes including BPCI patients – that is, all patients who fall within the 48 BPCI clinical conditions -- the difference between the market with the highest average total episode payment and market with the lowest average total episode payment was over $10,000. These data confirm what we've known for years: there's still significant variation in overall episode spending across markets.

Discharging behaviors and care patterns are major contributors to variation in episode spending across markets. Another factor that contributes to this variation by way of its impact on provider behavior is the extent to which these top volume markets contain risk-based payment models like ACOs, Medicare Advantage (MA) plans, and bundled payments. For providers that are pursuing these types of models, market-specific episode spending and discharging behaviors can point to the best opportunities for risk management.

A deeper dive into episodic data from three of the top volume markets—selected for their relatively high, medium, and low episode spending — reflects variability in use of SNFs relative to other PAC providers, as well as in the average length of stay at SNFs. Atlanta, the market with the lowest average episode payment among the top 10 MSAs, discharges a low percentage of joint replacement patients to IRFs as compared to Los Angeles and particularly Houston. Less reliance on IRFs could lower the average episode payment in Houston for some types of patients, whereas Los Angeles providers may need to reduce rehospitalizations and SNF lengths of stay to reduce episode spending.


With access to utilization patterns in your own markets, you can better understand how provider behavior is impacting episode spending, and armed with that knowledge, can position your company to successfully manage episode risk. While market variation exists in both the adoption and management of risk, the tactics to manage PAC spending within episodes remain unchanged: substituting lower cost settings of care, increasing efficiency within settings, and improving readmission management. What does change from market to market is whether and how these tactics are deployed. 

To create innovative, market-specific strategies, it is imperative that you have episode-level payment and performance data.

Sally Rodriguez is a director at Avalere Health. 
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Guest columns are written by long-term care industry experts, ranging from academics and thought leaders to administrators and CEOs.

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