As health care reform progresses, there will be increasing pressure on the health care system to reduce costs while improving the quality of care.  In order to meet these new challenges, many experts are looking for opportunities to reduce the fragmentation of care in the current system by better aligning providers.  If facility and professional providers share accountability for the total cost of care, not just for the component of care they provide, many believe this will lead to more standardized care, lower overall cost and improved quality outcomes.

One current payment reform concept is bundled payments.  Under a bundled payment, a single payment is made by a payer for the total cost of care for a defined episode of care.  Most commonly, these episodes include a hospital admission and all relevant health care services provided 30, 60 or 90 days after the admission.  The bundled payment represents the total reimbursement for all providers involved in the patient’s care during the defined episode.  The various providers need to agree on how to split and share that single payment.  This requires that all providers; acute care facilities, professionals and rehab facilities, need to understand their own costs, as well as the costs of the other providers, to ensure adequate profitability.  Medical complications increase costs, so all providers are incented financially to ensure the highest quality of care is provided for the patient.

Entering into a bundled payment contract requires a tremendous amount of planning and data analysis.  Facilities and physicians need to come together to analyze costs across all DRGs, including services incurred after discharge.

Accurate data is critical for a sound analysis.  To begin the process, data must be grouped into bundled events, or episodes.  Using inpatient admissions as the starting point, group all claims, for the same patient throughout the course of admission and for at least 90 days post discharge (a pre-admission time period may also be considered).  Organize the claims into time periods (inpatient, 30 day post discharge, etc) and maintain detailed claim information, such as procedure codes, diagnosis codes and provider IDs to enable a thorough analysis of the drivers of cost throughout the course of treatment.

Once the data are grouped, review the results by admission type to identify the higher volume and higher average cost events, as displayed in the report below.  Higher frequency and higher cost events may represent the greatest opportunity for savings, but this is just the beginning of the analysis.  Beyond, the average cost per event, it is important to drill into admission types of interest and assess the variance in cost across similar bundled events.  Care for event types with greater variance in cost may be more difficult to standardize and pose more financial risk for providers under a bundled payment contract.

In the prior exhibit DRG 470, Major joint replacement, or reattach Lower extremity, without major complication represents a higher frequency, higher average cost event type.  Opportunities to reduce inpatient expenses, such as length of stay and device costs all need to be considered, but the analysis cannot be limited to the inpatient setting.  The types of services, and the timing of those services provided after discharge also need to be considered.  Readmission rates, utilization of skilled nursing facilities/rehab facilities, on-going professional visits and therapies all need to be evaluated, as displayed in the chart below.

In summary, to prepare for bundled payment contracting, organizations must build actuarial models to establish baseline costs, identify areas where there is variance within the treatment patterns and gain support from all stake holders regarding treatment guidelines.   A robust analytic environment with complete, accurate data along with relevant benchmarks is essential for the planning process.