The Centers for Medicare & Medicaid Services Bundled Payment for Care Improvement program is well underway with hundreds of providers already in the risk-bearing phase and thousands more in the midst of finalizing their risk-bearing program participation decisions. 

Over the next few months, Awardees will continue analyzing their data to identify opportunities for reduced Medicare spending and match that to their organizational readiness to implement changes in care delivery. One such opportunity is capitalizing on the variation in historic spending among episode-initiators within the same geographic area.

There are three types of applicants under the BPCI program:

  1. Single Awardees (risk-bearing)
  2. Awardee Conveners who have multiple episode-initiators (risk-bearing)
  3. Facilitator Conveners (non-risk-bearing)

The majority of providers have applied either as or with an Awardee Convener. For these applicants, CMS provides historic spending benchmarks for each episode-initiator individually but, if those providers are in the same core-based statistical area (CBSA), they all receive the same target price. This methodology applies regardless of what types of providers are included under that Awardee’s application. For instance, for the 40% of Model 3 Awardee Conveners who have multiple provider types participating in the program within the same CBSA (e.g. a SNF and a long-term acute care hospital, CMS blends their target prices into a single target price for all facilities. In essence, CMS is applying a site-neutral payment within the BPCI program.

At first glance, this might seem like a disadvantage for those Awardees who have applied with multiple provider types, especially when taking into account the amount of inherent variation in episode spending among the various PAC providers. Nationally, the average 90-day episode spending for Major Joint Replacement of the Lower Extremity in LTCHs is $50,485 as compared to $14,944 in SNFs for example.

However, this variation also presents a huge opportunity to achieve savings under the program if Awardees can focus their redesign strategy on impacting the distribution of BPCI cases across all of their episode-initiators. The high-cost episode-initiators become assets as they drive the target prices up but only if the Awardee conveners can reduce average episode costs across all facilities as compared to their historic baseline.

The following figures illustrate this point under two potential scenarios that Model 3 Awardees may face within a given CBSA (the data depicted here are illustrative).

As stated above, Awardee Conveners who have both SNF and LTCH episode-initiators receive a blended target price between the two facility types that is higher than a SNF-only target price but lower than an LTCH-only target price (this is indicated graphically with the dashed blue line as the SNF-only target price and the dashed orange line as the LTCH-only target price). While these observations may encourage the Awardee to remove the LTCH altogether to avoid the blended target price, this would actually not be 100% favorable. The Awardee Convener will take a financial loss for every LTCH patient; however, every SNF patient means inherent savings. As the target price itself is calculated based on a weighted average of cases in the historic baseline period, the Awardee Convener can achieve significant gains if that Awardee can increase the SNF patient volume as a percent of overall volume. To do this, Awardee Conveners can either shift volume away from the LTCH to the SNF or focus on increasing SNF volumes in isolation from the LTCH (in the graph above the strategy would be to increase the number of blue bars as compared to the orange bars).

These dynamics are not limited to those Awardee Conveners who have applied with different types of episode-initiators. While not as pronounced for Awardee Conveners who have applied with only one provider type (e.g. all of the episode-initiators are SNFs), this opportunity is still present especially if an Awardee Convener has a high-spending episode-initiator in the same geographic area as a low-spending episode-initiator. 

Again, an applicant might be tempted to not include a facility that has higher than average episode spending. However, as depicted in the case outlined below, that high-spending facility can become an asset as it drives target prices up. The Awardee Convener can leverage this if its care redesign strategy focuses on increasing the number of below-target price spending episodes as compared to high-spending episodes.

On April 13, 2015 BPCI Awardees will have to make final decisions on which facilities to include in the program. While there are many factors to consider in making this decision, there are several key questions to answer specifically when evaluating high-spending facilities:

  • Will removing the high-spending facility from the program significantly change the blended target price?
  • How have that high-spending facility’s volumes changed since the baseline period and what are the volume expectations moving forward?
  • Is there a strategy in place to focus on decreasing episodic spending at the high-spending facility? What are the factors that are contributing to that higher spending and are they controllable?
  • Is there a concerted strategy to increase volumes at the lower-spending facility?

Ultimately, success under BPCI will be achieved by reducing average episodic spending across all of the participating facilities, regardless of provider type. Participants with multiple provider types may have an inherent advantage under BPCI with regard to blended target prices, however, without a specific strategy designed to leverage this advantage, there are also increased risks of financial loss. In addition, as with many aspects of BPCI, there are some limitations to this as a strategy, including but not limited to low episode volumes, spending volatility between quarters, and the incorporation of state spending averages in target price calculations.   

Elana Stair is a director at Avalere Health. Colin Yee is an associate at Avalere Health.

Source: Analytics powered by the Avalere Vantage Care Positioning System® Bundled Payment Calculator.