Bundled Payment Challenge


In October, the Centers for Medicare and Medicaid (CMS) issued its final rule on bundled payments for total joint replacement, Comprehensive Care for Joint Replacement  (CJR). CJR is not the first bundled payment program out there; neither is it the first in total joint replacement. It is, however, the first bundled payment program that has mandatory participation. As such, it is the first real attempt at executing the principles behind value-based care, and there is every reason to believe that CJR will become the model for how value-based care principles are interpreted in mandatory bundled payment programs in other key healthcare areas, such as cardiology.

The new rule places financial responsibility for the cost and quality of total joint replacement (one of the fastest growing, most financially impactful procedures performed at hospitals) with the hospital. In annual reconciliation transactions between a hospital and CMS, actual cost incurred during the entire episode of care-including the time after the patient leaves the hospital to go to home care, Skilled Nursing Facilities, rehab centers, etc., is compared with targets established by CMS. In short: If the episode costs more than CMS’ target, the hospital has to pay money back to CMS.

The challenge for hospitals is that: a) They are typically not structured and governed according to principles of value-based care (fee-for-value); b) They need to establish control of the intra-operative episode to a degree they have not been used to; and c) They need to create systems of accountability and coordination with post-acute care providers, a completely new concept in healthcare. The hospital must make far-reaching and fundamental changes to be ready for CJR.

The trouble is that the rule takes effect April 1 this year. The American Academy of Orthopedic Surgeons (AAOS) and the American Hospital Association (AHA) have endorsed the principles behind bundled payment models in general and CJR in particular. However, they have also warned that hospitals are nowhere close to being ready for this. This is being confirmed by hospitals that I visit, where understanding of the WHAT (focusing on the value delivered in the episode of care, not the isolated service event) and the WHY (creating accountability and care focus) is widespread, but as to the HOW (what are we going to do to prepare ourselves), there is much confusion.

Many hospitals have started on-boarding consultants, acquiring advanced IT solutions and buying fancy dashboards to track performance-and there has been a recent proliferation of “bundled payment solutions” from the healthcare services industry. Hospitals are preparing to become more advanced from an information perspective, which is great.

But let’s face it: Change does not happen through the delivery of a report or access to data. These give answers to the question, “Where are we?”-sometimes even to the question, “Where should we go?” What is missing is the answer to the question, “How do I get there?” Simply put: In preparing for value-based care programs like CJR, what is lacking is a transition infrastructure: A system of clinical and administrative change processes that are integrated and operational, and capable of handling the fundamental nature of the changes required.

An appropriate transition infrastructure combines clinical and operational elements in a managed change process that accomplishes four things:

Internal stakeholders (surgeons, nurses, technicians and administrators) and external stakeholders (post-acute care organizations and others involved in the episode) must have shared goals for what needs to be accomplished during the episode of care, and they must all realize the need to start doing things differently. In healthcare, this is not a small challenge for the hospital.

Creating sustainable and substantial efficiencies in the hospital as well as beyond the hospital requires a combination of operational and clinical initiatives. We have found that placing specially trained surgical support staff in the OR and integrating these with process improvement programs is highly effective. Across the episode, process improvement programs need to be executed with a focus on change ownership.

Managing fundamental transition requires access to actionable data that allows service line leaders to track performance (clinical and financial) in real-time. There are plenty of dashboards out there to choose from. Make sure to select one that can be integrated with your process changes, and one that can cover the entire episode of care.

Change initiatives can produce great results in the short term and then fall off as human nature makes us go back to business as usual. We have found that embedding change agents in the clinical staff is effective to assure changes are sustained over time.

CJR is reality and hospitals have started preparing for it. The challenge however, is to put this transition infrastructure in place to create the systemic changes needed-in the little time that is left before CJR takes effect. Hospitals across the nation have started preparing, but they frequently find themselves facing a wall when it comes to executing and managing the necessary changes.


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