Bundled Episode Payment and Gainsharing Demonstration · Bundled Episode Payment and Gainsharing Demonstration | Technical White Paper 5 even for services that were provided during

1Bundled Episode Payment and Gainsharing Demonstration | Technical White Paper

Bundled Episode Payment and Gainsharing Demonstration

TEchnical WhiTE PaPEr

Weslie Kary, MPP, MPhSeptember 2013


contents

introduction 3Design Principles 4Demonstration Governance 5contracting approach 6Episode Selection 7Use of Data 8Episode Definition Process 9

Total Knee Arthroplasty 10Total Hip Arthroplasty 13Unicompartmental Knee Arthroplasty (partial knee) 14Knee Arthroscopy with Meniscectomy 14Diagnostic Cardiac Catheterizations and Angioplasty 14Maternity, Hysterectomy and Cervical Spine Fusion 15

administrative issues and Their resolution 16Health Plan Issues 16The Hospital Perspective 17The Path to Auto-Adjudication 18

Other Issues 19Retrospective vs. Prospective Payment 19Risk and Stop Loss 21Gainsharing 21State Regulatory Concerns 21Corporate Practice of Medicine Prohibition 22Population Size 23

closing Thoughts 24

ThisprojectwassupportedbygrantnumberR18HS020098fromtheAgencyforHealthcareResearchandQuality.Thecontentissolelythe

responsibilityoftheauthorsanddoesnotnecessarilyrepresenttheofficialviewsoftheAgencyforHealthcareResearchandQuality.

©2013IntegratedHealthcareAssociation.Allrightsreserved.


TheIntegratedHealthcareAssociation’s(IHA)BundledEpisodePaymentandGainsharingDemon-stration(“BEPGD”or“thedemonstration”)evolvedfromworkthatIHAhadpreviouslycompletedwithanumberofCaliforniahospitalstocreatebenchmarkreportsaroundpricespaidforhigh-costmedicaldevices,includingorthopaedicandcardiacimplants.FundedbytheBlueShieldofCaliforniaFoundation(BSCF),thisprojectoriginallyincludedacomponentinwhichIHAandparticipatinghospi-talswouldmodelepisode-basedbillingandreim-bursementstructuresforproceduresinvolvingtheuseofthesedevices.

WhileIHAwascompletingitsmedicaldeviceproject,theCentersforMedicare&MedicaidServices(CMS)launcheditsAcuteCareEpisode(ACE)demon-stration,focusingonorthopedicandcardiacepisodes.LookingtotheearlysuccessesinmanagingdevicepricesreportedbyACEparticipants,thehospitalsparticipatinginIHA’smedicaldeviceprojectindi-catedtheywouldrathertestepisodepaymentthanmodelreimbursementstructures.

Duringthissameperiod,GeisingerHealthPlanwaspublishingtheresultsofitsProvenCaremodel,showingimprovementsinbothqualityoutcomesandefficiencythatgreatlyintriguedIHA’smemberorganizations.ThePRoMETHEuSPayment®demonstrationwasalsounderway,andFrancoisdeBrantes,leaderofthatdem-onstration,hadpresentedthePRoMETHEuSmodel

individuallytoseveralIHAmembersaswellasatagatheringofthefullIHABoard.

TheinterestsparkedacrossIHA’smembershipandCaliforniahospitalsbytheseevents,accompaniedbythreeextantmodels(ACE,GeisingerandPRoMETHEuSPayment)fromwhichtodrawdesir-abledesignfeatures,createdstrongsupportforIHAtolaunchabundledpaymentinitiative.Inresponse,IHAcraftedaproof-of-conceptepisodepaymentpilotsupportedbytheoriginalBSCFgrantandsupplemen-talfundingprovidedbytheCaliforniaHealthCareFoundation.ThefundingprovidedbytheAgencyforHealthcareResearchandQuality(AHRQ)allowedtheexpansionofthisoriginalproof-of-conceptpilotoverthreeyearsintothemuchmoreambitiousBEPGD.WhileavailablefundingandscopeweregreatlyexpandedfortheBEPGD,fromtheperspectiveofIHAanddemonstrationparticipants,theprojectwasacontinuousevolutionfromtheearlyworkwithdevicesthroughthecompletionoftheBEPGD.Manyofthekeydecisionsandapproachestodesignandimple-mentationthatwereappliedduringBEPGDwereactuallydevelopedduringtheinitialpilotstage.

Thiswhitepaperdescribestheissuesanddeci-sionsthataroseoverthecourseofallofIHA’sworktohelphealthplansandprovidersinterestedinpursuingepisodebundledpaymentnavigatethemyriadoftechnicalchallengesanddetailsinvolvedinitsimplementation.

introduction

In September 2010, IHA was awarded a 3-year, $2.9 million grant from the Agency for Health Research and Quality (AHRQ) to implement a bundled payment strategy in California. The project, titled Bundled Episode Payment and Gainsharing Demonstration, aimed to test the feasibility and scalability of bundling payments to hospitals, surgeons, consulting physicians and ancillary providers in the california delivery system and regulatory environment. issue briefs, practical tools such as episode definitions and contract language, and other resources are available at www.iha.org.


Design Principles

SeveralkeyprincipleswereestablishedinearlydesigndiscussionsandmaintainedthroughouttheBEPGD.Theseincluded:1.Exclusive focus on procedural episodes.IHA

participantsagreedtofocusexclusivelyonproce-duralepisodesvs.contemplatingepisodepaymenttoreimbursethecareofpatientswithchronicdiseases.IHAmembershavesignificantexperiencewithcapitation,andpreferredthatapproachoverepisodepaymentforprimarycare;thedemonstra-tionwasdesignedtotestepisodepaymentasamechanismtoalignincentivesbetweenspecialistphysiciansandhospitals.

2.Common framework.Allpartiesagreedthatthedemonstrationwouldestablishcommonepisodedefinitionsthatwouldnotbemodifiedbyindividualnegotiations.Thegroupsoughttoestablishcom-monadministrativeparametersandprocesses,sothataproviderimplementingepisodepaymentundermultiplehealthplancontractswouldfacethesameadministrativerequirementsforeachplan.Thethirdcomponentofthecommonframeworkwasthecalculationofhistoricalepisodecostsusingcommonreportspecificationsacrosshealthplans.

3.Risk-based contracts.Anotherprinciplewasthatproviderswouldacceptriskfortheepisodeasdefinedandkeepanyefficiencysavingstheywereabletogenerate—inotherwords,theepisodepaymentwasafixedcaserateratherthanasharedsavingsarrangement.

4.Application of warranty provisions. Allpartici-pantswereinterestedintestingwhetherthetypeof“warranty”thatGeisingerhadpioneeredintheirProvenCaremodelcouldworkinanon-integratedenvironment.Forhealthplans,includingthewarrantywasanon-negotiableconditionoftheirparticipationbutproviderswereequallyinterestedintryingthewarrantyconceptasawaytodemon-

stratebothaccountabilityanddifferentialvalueinthecommercialmarketplace.

5.Any willing participant.AnyorganizationinCaliforniawhichexpressedinterestwasinvitedtojointheIHAdemonstration.Theactualimple-mentationofbundledpaymentwaspredicatedonexecutedcontractsbetweenprovidersandhealthplans,withallparticipantsretainingthefreedomtochoosewithwhomtheywouldultimatelycon-tract.Thecontractsdidnotapplyspecificallytothedemonstration;rather,theywereexpectedtobeamendmentstoexistingcontractsbetweenhealthplanandproviders,spellingoutspecialprovisionsforthebundledpaymentinthesamewaythatthetwopartiesmightnegotiateatransplantcaserate.

6.Automated billing and claim auto-adjudication.Althoughallpartiesrecognizedthatspecialhan-dlingforbillingandclaimprocessingwouldberequiredinitially,bothhealthplansandproviderswereexplicitlylookingtodevelopdefinitionsandadministrativeparametersthatcouldultimatelyallowautomaticbillingbyprovidersandauto-adjudicationbyhealthplans.

IHAimposedtwoadditionaldesignrequirementsonthedemonstration:1.No price discussions or transparent price data.

Indeferencetoanti-trustconsiderations,therecouldbenodiscussionsofpriceoranyaspectofpricedur-inggroupdiscussions.Additionally,althoughIHAestablishedacommondataframeworktocalculatehistoricalepisodeprice,thehealthplansprovidedtheactualreportsdirectlytoeachproviderwithoutsharingthisinformationwithIHA.

2.Continuing availability of service level data.Allproviderswererequiredtoprovidecompletefee-for-service(FFS)billingtothehealthplansduringtheepisodefor“nopay”claimprocessing,


evenforservicesthatwereprovidedduringthewarrantyperiodandaftertheepisodepaymenthadbeenmade.Thisrequirementwasdesignedto

ensurethatvitaladministrativedataaboutactualservicesrenderedtopatientswerenotlostduetothechangeinbillingstructure.

Demonstration Governance

Theinitialgovernancestructureforthedemonstra-tionincludedthreecommittees:aclinicalcommitteechargedwithepisodedefinitionandqualitymeasure-ment;acontractingandadministrationcommitteechargedwithdevelopingboththecontractingmodelandadministrativeinfrastructureforepisodepayment;andadata/reportingcommitteethatwasintendedtoestablishthedataarchitectureandreportingformats.Decisionsweremadebyconsensus,withIHAmakingthefinaldecisiononissuesthatcouldnotbesolvedviatheconsensusprocess.

Theinitialstructureprovedabitunwieldy,requiringthatallparticipantssendrepresentativestothreecommitteemeetings.Theproviderrepre-sentativesonthecontractingandadministrationgroup,whotypicallyworkedwithinthehospital’smanagedcareandfinancedepartments,wishedtoexertmorecontroloverepisodedefinitionsthatwouldultimatelydeterminethefinancialriskas-sumedbythehospitalthroughthecontractingpro-cess.IHAalsostruggledwiththeroleofthetechni-calcommittee.overtimeitprovedmoreeffectiveforthecontractingandadministrativegroup(whichrepresentedtheendusers)toapprove

reportformatsandfortheprojectdataconsultant(optum,formerlyIngenixConsulting)toworkindividuallywiththehealthplandatarepresenta-tivesonhowtorunthereportswithineachplan’sdatainfrastructure.

ThestartoftheBEPGDalsomarkedthestartofarevampedgovernancestructure.Thenewstructurecomprisedatechnicalcommitteewithclinical,contractinganddatarepresentativesworkinginconcertonthenewepisodedefinitions,andasteer-ingcommitteechargedwithprovidingfinalreviewandapprovalofthedefinitionsandstrategicover-sightofthedemonstration.

IHAalsoaddedrepresentativesfromtwomajorclaimsoftwarevendorcompanies,McKessonandTriZetto,toboththetechnicalandsteeringcommit-tees.Theseorganizationswereactivelydevelopingclaimadministrationsoftwareforbundledpayment,andtheirrepresentativesaddedvaluableideasabouthowtostructurethedefinitionstofacilitateauto-adjudication.Additionally,bothfirmsbuilttheIHAepisodedefinitionspecificationsintotheirbetaver-sionsofbundledpaymentclaimsoftware,providinganimportanttestofadministrativefeasibility.


contracting approach

Goingintothedemonstration,IHAestablishedaprinciplethattheactualimplementationofbundledpaymentwouldbegovernedbyindividualPPocon-tractsbetweentheparticipatinghealthplansandtheparticipatingproviders.Negotiationofallprovisionswithinthosecontractswouldbeconfidentialtothenegotiatingpartiesandthepartieswerefreetomodifyanyprovisionestablishedbythedemonstrationgroupexcepttheepisodedefinition.

IHAdidnotattempttostandardizethecontract-ingstructurebutanticipatedparticipantswoulduseastructuresimilartotheoneshowninFigure1.Inthisstructure,thereisonecontractbetweenthehealthplanandthegeneralcontractororganization(or“bundler,”typicallyahospital)andasetofcon-tractswithsimilarprovisionsbetweenthegeneralcontractorandsubcontractorsforthebundle,typi-callyphysiciangroups.ThecontractbetweenthehealthplanandthegeneralcontractorwasassumedtobeanamendmenttoanexistingPPoagreement;thecontractbetweenthegeneralcontractorandsubcontractorwouldbeanewstand-alonecontractspecifictothedemonstration.

Participantswerefreetocontractselectively;therewasnorequirementthateveryparticipatinghealthplanhadtocontractwitheachproviderorviceversa,althoughallparticipantswereaskedtocommittonegotiatingingoodfaithtowardsexecut-edagreements.Similarly,thebundlercouldcontractselectivelywithsubcontractors—forexample,con-tractingonlywithsurgeonswhoperformedmorethan200jointreplacementsannually.Eachhealthplanrequiredthateverysubcontractingphysicianalreadyhaveacontractasapreferredproviderwith-inthehealthplannetwork,reasoningthatitcouldnotcommunicatetomembersthataphysicianwaspreferredforaparticularepisodebutnotforotherprocedures.Thisselectivecontractingfurtherexacerbatedvolumeissuesforthedemonstrationbylimitingthenumberofparticipatingsurgeons;however,bothhealthplansandhospitalswereinfavoroftheapproachasamechanismtoensurethequalityofservicesprovidedtomembersunderthedemonstration.

Whileallparticipantswereconceptuallyinfavorofthecontractingstructure,allnotedthatobtaining

health plan

hospital

Optional rehab package services

Surgeon group/ iPa foundation

Other MDs, PT

new contract new contract

new contract

Figure 1 CoNtRACtiNg modEl—hospitAl As lEAd

PPO contract amendment


theinternallegalresourcestodraftthecontractswasasignificantobstacle.IHAusedgrantfundstohelpaddressthisissue.WhileneitherIHAnoritsretainedcounsel,DavisWrightTremaineLLP(DWT),couldprovidelegaladvicetoparticipants,IHAaskedDWTtocreatecontracttemplatesthatmighthelpparticipantsacceleratetheirinternalprocessesaroundlegalissues.IHAalsoengagedDWTtopresenttheanticipatedcontractingstructureina

conferencecall,andtheinternalcounselofeachparticipatingprovidergroupwasabletoaskDWTquestionsaboutboththecontractsandunderlyinglegalissuesofimplementingepisodepaymentinCalifornia.

TheparticipatinghealthplanseachdevelopedtheirindividualversionsofaPPocontractamend-ment,butallnotedthesamplecontractswereasignificanthelpinacceleratingthisprocess.

Episode Selection

IHA’sclinicalworkgroup,andlaterthetechnicalcommittee,wasgivenauthoritytoapprovetheselec-tionofproceduresforinclusioninthepilot.Theworkgroupassessedpotentialproceduresagainstfourprimarycriteria:1. impact.Istheresufficientvolumeintarget

populations?Whatisthetotalspendontheseprocedures?

2. Quality improvement potential.Istherevaria-tioninprocedureexecutiondespiteconsensusoncarepathwaysandappropriatenesscriteria?

3. Efficiency improvement potential.Istheresig-nificantcostvariationthatisnotrelatedtonegoti-atedreimbursementlevels?Whatisthepotentialforsavings?

4. participant engagement.Howlargeistheserviceline?Howmotivatedandengagedarethephysi-cians,hospitals,andhealthplansthatwouldbecontractingfortheepisode?

Thegroupintentionallydidnotassignweightstothesecriteria.Procedureswerechosenbyaconsensusprocess.Therewasunanimoussupportforbeginningwithkneeandhipreplacements,giventhecostvaria-tionthatIHAhaddocumentedinitspreviousworkonimplantcostsandtheearlysuccessesofACEdemon-strationhospitalswithorthopaedicprocedures.once

theissueswithsmallsamplesizeincommercialpopu-lationsforthesetwoproceduresbecameapparent,thecommitteebegantorelymoreheavilyonnationaldatasuppliedbyoptumthatrankedproceduresbasedonvolume,standardizedcostandvariation.Impact(volume)wastheprimarycriterionforselectionofthecardiaccatheterizationandstentingprocedures.

Althoughprocedureandselectiondecisionsbecamemoredatadrivenovertime,practicalconsiderationscontinuedtoplayaroleaswell.Forexample,cholecystectomyrankedhighlyonvolumeandvariation,butonehealthplanvetoedthisproce-durebasedontheperceptionthattheprocedurewasactuallyhighlystandardized,withvariationarisingonlyfromoutlierproviderswhowouldlikelynotbeparticipatinginthedemonstration.Healthplanswereoriginallyveryinterestedinbundlingcoronaryarterybypassgraft(CABGs)procedures,whichrankedhighlyonvolumeandcostbasedonnationaldata.Participatinghospitalsindicated,however,thatthevolumeoftheseproceduresintheirfacilities(andinCaliforniaingeneral)wastoolowtowarranttheeffortofimplementingbundledpayment.otherfactorsalsoplayedaroleinepisodeselection.Forexample,IHAchosekneemenisectomyspecificallytoexpandthedemonstrationintotheout-patientprocedurerealm.


Use of Data

IHAmadeanearlydecisionnottoattempttoaggre-gatedataacrosshealthplansgiventhepotentialdelaysadataaggregationeffortwaslikelytoinduce.Also,IHAcouldnotvieworaggregateactualcostorpricedatagivenbothanti-trustandproviderconfidentialityconcerns.Toaddresstheneedtocalculatehistoricalepisodecosts,IHAchosetodevelopcommonreportspecificationsandcodethateachparticipatinghealthplancouldrunagainsttheirowndatatoproduceandsharehistoricalepisodecostdatawitheachoftheparticipatingproviders.

IHAthencontractedwithoptumtodevelopspecificationsandcodetogeneratethepayerreports.optumalsosupportedepisodedefinitiondevelop-ment,andtranslatedclinicalspecificationsintocode-baseddefinitionsthatcouldbeusedbothasthebasisoftheplannedhealthplanreportsandforclaimsadministration.Additionally,optumagreedtomakeinformationfromitsnationaldatabaseontheunder-age65commercialpopulationavailabletotheproject.

optum’snationaldatabaseprovedenormouslyhelpfultotheprojectbecausetheneteffectofthedecisionnottoaggregatedataacrossplanswastoleaveIHAotherwisewithoutanydataintheearlystagesofthedemonstrationproject.ultimately,IHAdrewonoptum’snationaldatatosupporteveryas-pectofepisodeselectionanddefinition.Thesedatafedreportsthatrankedproceduresbyvolumeandstandardizedcosts,answereddefinitionalquestionssuchasthefrequencyofuseofspecificprocedurecodeswithinacodefamily,andwereusedtoestimatetheportionofchargescapturedbytheIHAdefini-tionsandthe“value”ofspecificexclusionsbuiltintothedefinition.

IHAexperienceddecidedlymixedresultswithitsapproachofsupplyingthehealthplanswithcodetorunstandardizedreportsforeachprovidergroupparticipatinginthedemonstration.

1. onehealthplansucceededinrunningallthereportsandproducedoutputforeachparticipatinghospital.AsIHAhadhoped,thisplanalsodecon-structedthecodeandrepurposedittorunthereportsforotherregionsandtosupportnegotia-tionswithkeyhospitalsoutsideofCalifornia.

2. onehealthplanhadgreatdifficultyrunningthereports.Althoughtheyultimatelysucceededwithreportsfortheorthopaedicprocedures,theyfoundtheresourcerequirementsonerousandwereextremelyreluctanttocommittorunningreportsforanynewprocedures.

3. onehealthplanaskedforanearlyversionofthecode,testeditagainstaninternaldatabase,con-cludedthatprocedurevolumewasinsufficienttojustifytheeffortofparticipationinthedemonstra-tionandwithdrew.IHAwasunabletoconfirmordenythevalidityoftheiranalysissinceithadnolineofsightintothewaythereportswereused.

4. onehealthplanneversucceededinsecuringtheinternaldataresourcesneededtorunthereports.

EventhehealthplanthathadthemostsuccesswiththereportslatertoldIHAthattheapproachwascumbersome.Theirusualprocesswastodevelopdatatosupportcontractingwithintheregionalcontract-ingteam;butforthedemonstration,IHAworkedwiththeirnationaldataorganizations.Asplanned,thenationalteamsentthereportstotheregionalman-agedcarenegotiators,buttheserepresentativeswereill-equippedtointerpretthereportsandthereforereluctanttosharethemwiththeircounterpartsontheprovidercontractingsideofthetable.Whentheyturnedtotheirusualchannelswithquestions—theirregionaldataexperts—thatgroupstruggledtoassistbecausetheyhadnotbeeninvolvedearlyonwiththecodedevelopment.

Inaddition,thelackofvolumewhencommer-cialproceduresweresplitbyhealthplanandby


hospital,madereportresultsunreliableformostparticipants.Quiteafewparticipatinghospitalshadnovolumeatallwiththetwohealthplansthatwereultimatelyabletoproducereports.

Thestrugglestoprovidedatatothenegotiatingteamsnegativelyimpactedprojectmomentum,addingmonthsofdelaybetweenthecompletionofthefirstepisodedefinitionsandtheexchangeofinitialdatabetweentheplansandtheparticipatingproviders.Then,healthplanreluctancetocommittoproducingdatafornewepisodesprovedasignificantobstacletomovingnewepisodesintoanimplementationstage.

Twopositiveoutcomesoftheapproachwere:1. optumranthereportsagainsttheirnationaldata

base,whichlettheparticipantslookattheresultsofthedefinitionalworkagainstareliablylargenumberofepisodes,somethingnosinglepayerinCaliforniacoulddobecauseindividuallytheylackedasufficientvolumeofepisodes.

2. TheWisconsinPaymentReformInitiative,whichhadelectedtoadoptlargepartsofIHA’skneereplacementdefinition,wasabletorunthereportsagainsttheirall-payerstatedatabase,quicklyproducinginformationacrossallprovidersinWis-consintojump-starttheirownbundledpaymentdemonstrationproject.

AfinalkeyissuearounddataisthatthereportingstructuredevelopedforBEPGDwastiedtodetailedclaimleveldata,whereasprospectivepaymentforbundlesdiscouragesthereliablecodingandsubmis-sionofindividualservicebillsgoingforward.Thedemonstrationwasnotabletotestwhetherpartici-pantcommitmenttoprovidingFFSclaimswithinthebundledpaymentdemonstrationwouldbesufficienttoretaindetailedserviceleveldataovertimeorwhetheraseparateencounter-basedreportingsystemwouldberequiredatsomefuturedate.

Episode Definition Process

onceBEPGDparticipantshadagreedonaspecificprocedure,IHAengagedaclinicalconsultantandaskedoptumtodevelopapreliminaryepisodedefini-tion.optumandtheclinicalconsultanthelpedwithpatientselectioncriteria,identifiedtypicalclinicalriskassessmentstrategiesforthepatientpopulation,andidentifiedcodingscenariosthatwouldaccompanycommoncomplications.Thispreliminarydefinitionwasthenpresentedtothetechnicalcommitteeandtheconsensusprocessbegan.Boththeclinicalconsultantandoptumactivelyparticipatedincommitteemeet-ingstoanswerparticipantquestions.

Severalbackgrounddecisionsandextraneousfactorsinfluencedthesediscussionsandtheepisodedefinitionprocess:1. Common definition.Allparticipantsinthedem-

onstrationagreedtoincludetheepisodedefini-tion—withoutmodification—intheindividualcontractsgoverningimplementation.Whileall

otherepisodeprovisionscouldbenegotiatedbe-tweenthecontractingparties,thefactthatthedefi-nitioncouldnotbechangedmadeittheprimarydriveroftheamountandtypeofriskthatwouldbetransferredtoprovidersthatimplementedepisodepayment.

2. No risk adjustment.IHAmadeanearlydecisionnottoadoptorattempttodeveloparisk-adjust-mentmethodologyfortheepisodesandinsteadtoattempttolimitthedemonstrationpopulationtofairlylowriskpatients.Theintentwastoselectthepatientsforwhomanycomplicationsoccurringduringthewarrantyperiodmightbereasonablyassumedtobewithinthecontrolofthetreatingphysicianorhospital.WhileIHAoriginallybasedthisdecisionontiming—comingtoagreementonariskadjustmentmethodologywaslikelytoaddmanymonthstothedefinitionprocess—italsobecameapparentovertimethatexistingrisk


adjustmentmethodologiesaremuchbettersuitedtoretrospectiveepisodeanalysisandretrospectivepaymentadjustmentsthantoreal-timepatientidentificationandprospectivebundledpayment.Theproblemisthatriskadjustmenttypicallyreliesoncomplexalgorithmsappliedtodetailedandrelativelylong-termaccumulationsofclaimhis-torythatarenotavailableinreal-timetoeithertheproviderortheclaimprocessor.

3. Weigh administrative complexity.Most—thoughnotall—membersofthegroupexplicitlywishedtobalanceadministrativecomplexitywithepisodecomprehensiveness.Thegrouptypicallydecidednottoincludeservicesorcomplicationsthatmarginallyincreasedthecomprehensivenessoftheepisodewhilesimultaneouslyincreasingadminis-trativeburden.Adiscussionaroundextendingtheepisodeperiodtocapturelatesurgicalinfectionsillustratesthisconcept.IHA’sclinicalconsultantadvisedthatanysurgicalsiteinfectionwithintwelvemonthsoftheprocedureisdeemedtobecausedbytheoriginalprocedure.Also,alargepercentageofinfectionsarenotfounduntilmorethansixmonthsfollowingtheoriginalprocedure.Thegroupelectedtomaintaina90-daywarrantyperiod,however,becausethelongerthewarrantyperiod,themoredifficultitbecomestoprocessepisodepayments.Addingfurtherweighttothisdecision,optumdatashowedthatasmanyastenpercentofpatientschangedinsurancecoverageduringa90-dayepisodeperiod,thereforealongerepisodeperiodseemedlikelytoleadtomorepatientsbeingdroppedfromtheepisodepaymentdemonstration.

4. plan for auto-adjudication.Thegroupalwayslookedtoidentifydefinitionaltermsthatwouldallowforeventualauto-adjudication.usingpatientselectioncriteriathatwouldprovidebothprovid-ersandhealthplanstheabilitytoprospec-tivelyidentifypatientsiscriticaltothisgoal.Inprospectivepaymentsituations,thebundler

cansetupnotesinthebillingsystemandnotifysurgeonsandotherproviderstobillthebundlerratherthanthehealthplan,andalsotocollectpatientcoinsurancebasedonthebundledrate.Thehealthplancansetupanotificationinitssystemsnottopayindividualclaims,therebyminimizingretrospectiveclaimadjustments.

Whileeachoftheabovedecisionsaffectedthedevelopmentofallepisodes,mostotherdecisionsweremadewithinthecontextofaspecificdefini-tion.Eachdefinitionrepresentedafreshstartinwhichallpreviousepisode-specificdecisionswererethoughtandbecameprecedent-settingonlyiftheyhadcontinuingapplicability.Also,whilesomedefinitionalapproachesthatweredevelopedlaterinthedemonstrationcouldhaveimprovedearlierepi-sodedefinitions,IHAdidnotreopentheconsensusprocessonepisodesthathadbeenapprovedasfinaltocapturelaterenhancements.

totAl KNEE ARthRoplAsty

onereasonIHAselectedtotalkneearthroplastyforitsfirstprocedurewasthatseveralotherinitiativeshadalreadydevelopedadefinitionfortheprocedure,includingtheMinnesotaDepartmentofHealth’s

An important lesson learned:

Participants were not able to make nearly as much use of the definitions from existing grouper soft-ware and other bundled payment demonstrations as had been anticipated because those approaches almost universally relied on coding unavailable at the time of procedure or claim. That is, episode definitions that had been designed for retrospective payment could only be assigned retrospectively. Once participants determined that prospective payment required a prospective view of patient identification, analyzing previous definitions was eliminated as a step in the definition development process.


BasketsofCareinitiative1,GeisingerHealthPlan,theACEdemonstrationandPRoMETHEuSPayment.Nonetheless,thisfirstdefinitiontookalmostninemonthstocompletewhilethegroupbuiltconsensusaroundmanyofthetoughestdefinitionalissuesforthedemonstration.

ImportantdebatesanddecisionsmadewithrespecttotheTotalKneeArthroplastydefinitionincluded:1. only include patients with an American society

of Anesthesiologists (AsA) score <3.Foreachdefinition,IHAlookedforclinicalindicatorsthatwouldallowprospectiveidentificationofapopula-tionofrelativelylow-riskpatients.IHAparticu-larlywantedtofindindicatorsthatwouldworkforboththeprovidersandinclaimadjudication.ASAratingisanimperfectindicator,butwastheindica-torthedemonstrationparticipantsdeterminedtobethebestwaytoidentifyin-patientkneereplace-ments.DemonstrationparticipantstoldIHAthattheindicatorisimperfectbecausetheASAassign-mentismadebytheprofessionaljudgmentoftheanesthesiologistjustbeforetheprocedureoccurs.Thus,althoughtheassignmentsarebasedonclini-calguidelines,inpracticetheycanvarybyanes-thesiologistandfurthermorearenotmadeearlyenoughtobepartofthepre-authorizationprocesswhenschedulingthesurgery.However,theprovid-ersagreedthattheycouldmakefairlyreasonableassumptionsatthepointofpre-authorizationaboutwhichpatientswouldberatedASA1or2bytheanesthesiologists.

ThesecondproblemwithASAratingisthatitisnotontheclaimandthereforenotavailabletothehealthplanforauto-adjudicationorforretro-spectivecostanalysis.However,thehealthplansagreedthatapre-authorizationdecisionbasedonapresumedASAratingcouldworktoidentifythepatientsintheclaimsystems.Additionally,participantsagreedthataretrospectiveassign-mentofAPR-DRGSeverityofIllness(SoI)of2

orlesswasanadequateapproximationofanASAratingof2orless.However,thedecisiontouseAPR-DRGSoIlevelfortheretrospectivelookatepisodecostswasnotwithoutitsownproblems.WhileallparticipatinghealthplansassignanAPR-DRGwithSoIatsomepointintheirdatasystems,somehealthplansmaketheassignmentinseparateanalysissystems.TheneedtolinkdatasystemstoobtaintheAPR-DRGSoIwasoneofthereasonssomehealthplanshaddifficultyrun-ningthereportpackage.

2.include only patients with Body mass index

(Bmi) <40.Manypracticingorthopaedicsur-geonsbelievethatobesepatientsaremorepronetocomplicationsfromjointreplacementsurgery.AlthoughtheteamdevelopingMinnesota’sBas-ketsofCaredefinitionforkneereplacementfoundnosolidevidencetosupportthistheoryintheliterature,theystillelectedtolimitpatienteligibil-itytothosewithaBMI<35toaddresssurgeons’concerns.oneofthekeysurgeonsatahospitalparticipatingintheIHAdemonstrationhadsuchstrongviewsonthistopicthatheaskedtoaddressameetingoftheclinicalcommitteetomakehisargumentforapplyingalowBMIthreshold(e.g.32).IHA’sclinicalconsultantopposedthethresh-old,arguingthatitwouldseriouslylimitthenumberofpatientsincludedinthedemonstration.ParticipantsalsoconcludedthattheycouldnotaccuratelypricealowthresholdusinghistoricalclaimdatasinceBMIhasnotbeenreliablycodedinclaimhistory.overcontinuingprotestbytheparticipatingsurgeonandhisfacility,theBMIthresholdwassetat40(morbidlyobese).

3. Exclude pre-procedure services from the ppo

definition.Thisdecisionwasprimarilyadminis-trative.Sincethetriggerfortheepisodewastheadmissionfortheprocedure,itwasassumedthattheserviceproviderswouldbillthehealthplansdirectlyforpre-procedureservices.Thesebillswouldhavealreadybeenprocessedbythetimethe

1.http://www.health.state.mn.us/healthreform/baskets/TotalKnee090622_FinalReport.pdf


claimforthewholebundlewassubmitted.Includ-ingtheseservicesthereforewouldhavemeantthathealthplanswouldneedtoidentifyandreprocessthepre-procedureserviceclaimsasno-payclaims,andthenthehospitalwouldhavetore-paytheclaimsoutoftheepisodepayment.

4. Exclude post-acute facilities and rehabilitation

services from the standard episode definition

for knee and hip replacement. Participatinghospitalswerereluctanttotakeonthesignificanteffortofnegotiatingnewcontractswithpost-acuteproviderstoprovidepost-acuteinpatientandtherapyserviceswithinthebundleforpurposesofasmalldemonstrationproject.WithinthePPoenvironment,participatinghospitalswouldnotbeallowedtoinsistthatpatientsseeonlytheircontractedpost-acuteandphysicaltherapistpro-viders.Inaddition,severaloftheparticipatinghospitalshadasignificantpopulationofkneereplacementpatientscomingfromoutsidetheimmediatelocalservicearea.Theyarguedthatpatientswouldwanttoreceivepost-acuteandrehabservicesclosetohomeratherthanclosetothehospital.Insum,theywereunwillingtoas-sumetheriskforservicestheydidnotfeeltheyhadthemechanismstomanage.

usingoptumdata,IHAconfirmedthatinpa-tientpost-acuteservicesareprovidedtoonlyasmallpercentageofcommercialkneereplacementpatients,thereforeexclusionoftheseserviceswasnotamajorissueforthehealthplans.Excludinghomehealthandphysicaltherapyserviceswasamajorpointofcontention.Thecompromiseposi-tionofofferingtheseservicesasaseparateoption-alpackageforthePPodefinitionpleasedalmostnoone.HoagMemorialHospitalPresbyterian(hereaf-ter“HoagHospital”)wastheonlyparticipantthatplannedtocontractfortheoptionalbundle.TheychosethisapproachbecausetheyhadalreadysetupthecapabilitywithintheirseparateMedicalTravelProgramtoprovidephysicaltherapytopatientsimmediatelyfollowingsurgery.

5. Exclude acute myocardial infarction (Ami) as a

covered complication of knee and hip replace-

ment during the warranty period.Thisexclu-sionwasamongthemostcontentiousofissuesthegroupdebated.Aftermuchdiscussioninwhichhealthplansarguedthataheartattackimmediatelyfollowingakneereplacementwasalmostcertainlyrelatedtothekneeprocedureandthehospitalsexpressedconcernedaboutthelevelofrisk,AMIswereinitiallyincludedasarelatedcomplicationinwhatwasintendedasthefinalversionofthe

kneereplacementdefinition.Aftersigningoffonthatversion,thehospitalslaterre-openedthedebate,continuingtoprotestthelevelofpotentialfinancialconsequenceforanoutcomethat,whilerelated,wasnotnecessarilyundertheircontrol.Disagreementamongthepartiesonthisissueaddedseveralmonthstothedefinitiondiscussions.

6. Exclude readmissions to another hospital.Themostcontentiousofalldefinitionalissues—andtheonlyissuewhereIHAexerciseditstie-breakingauthority—waswhetherthehospitalthatper-formedtheoriginalprocedurewouldbeheldliableforthecostifapatientinthewarrantyperiodwasreadmittedtoadifferenthospital.Thepilothospi-talsrefusedabsolutelytoaccepttheresponsibility,

one perspective on unintended consequence:

a physician representing the medical group at one of the hospitals said, “Yes, a heart attack seven days after a knee replacement is almost certainly related to the procedure. The real cause though is most likely undis-covered heart disease present at admission. You can force us to accept this risk as a related complication. however our likely reaction to control the risk will be to subject every patient to a full cardiac work-up before the procedure, adding $3,000 to the cost of every knee replacement we do. is that what you want to have happen?”


ofpayinganon-affiliatedproviderforservicestheycouldnotmanageandthatwouldlikelybechargedatbilledrates.Thehealthplanswereequally

adamantthatthewarrantyshouldcoverrelatedcomplications,regardlessofwheretheyweretreated.Intheend,thehealthplansagreedtothisexclusionwhenfacedwiththecertaintythatthehospitalswouldnotparticipateinthepilotifpar-ticipationmeantacceptingthisrisk.

TheargumentthatultimatelyconvincedIHAtoexcludereadmissionstootherfacilitiesisthatincludingthemplacesthepatientinthemiddle.Intheabsenceofagoverningcontractbetweenthehealthplanandthereadmissionfacility,thepatientisultimatelyliableforthecharges.IHAworriedthatpatientswouldbeplacedinanuntenablepositionduringadisputeoverreadmissionchargesfromafacilitynotparticipatinginthedemonstra-tion.IHAfeltthatevenonesuchoutcomewoulddoomthedemonstrationwithbothemployersandCaliforniaregulators.

7.Exclude ms-dRg 469 patients (joint replace-

ment with significant comorbidities and/or

complications) from the definition.Thisexclu-sionwasamistakethatIHAdidnotfullyappreci-ateuntilverylateinthekneeandhipreplacementepisodediscussions.Theintentoflimitingthe

definitiontoMS-DRG470(jointreplacementwith-outsignificantcomorbiditiesorcomplications)wastoexcludepatientsknowntohavesignificantco-morbidconditionsatthetimeoftheproce-dure.Thisdecisionfollowedfromtheobjectivetoselectalower-riskpopulationforpurposesofthedemonstration.However,theeffectofthedecisionwastoalsoexcludelow-riskpatientswhosufferedsignificantcomplicationsduringaroutinekneeorhipreplacement.Thesewerepatientswhosecomplicationsshouldhavebeenincludedintheepisodebyvirtueofthewarrantyprovisions,butwereexcludedbyvirtueofapost-dischargeas-signmenttoMS-DRG469.

Thisexclusionhadsignificantcostimplica-tions.optumestimatedthatexcludingpatientswhowouldhavebeengroupedtoMS-DRG470intheabsenceofcomplicationsexperiencedduringtheacuteperiodoftheepisode,butwhoweregroupedtoMS-DRG469becauseofthosecomplications,understatedhistoricalepisodecostsbyalmost4%.

totAl hip ARthRoplAsty

IHAelectedtosplitDRG470intoseparatedefinitionsforkneeandhiparthroplastytoreflecttheopinionsofboththeproviderparticipantsandtheorthopaedicconsultantthattheresourcerequirements,andthere-foretheresourcecosts,forthesetwoproceduresareactuallyquitedifferent.unlikeMedicare,privatehealthplanstypicallynegotiateseparatepricesforthetwoproceduresandsotheyagreedwiththisap-proach.Modifyingthekneedefinitiontoaddresshiparthroplastywasaquickprocesswithnomajorareasofcontroversy.Thedefinitiondoesincludediffer-entparametersfortheoptionalpost-acutebundletoreflecthip-specificrehabilitationpathways.

IHAaddedhiparthroplasty(andlater,unicom-partmentalkneearthroplasty)inparttoincreasethepotentialvolumeofpatientsinthedemonstrationforparticipatingorthopaedicsurgeons.Inretrospect,IHAmighthavetreatedalloftheseproceduresasasingledefinitionwithafewvariablesthatdrove


DRGs may be valued in episode definition for both the universal availability of the grouper software and the fact that they provide a common understanding of patient classification between providers and health plans. however, they can’t stand alone for prospective episode payment because they are assigned post-discharge based on actual rather than anticipated outcomes. For example, a patient who enters the hos-pital for a routine knee replacement but experiences complications may be assigned post-discharge to a DRG that reflects the complication rather than the original procedure. a better solution may be to base patient selection only on prospectively known factors, such as admitting diagnoses and procedure code; the iha demonstration did not test that alternative.


differentnegotiatedrates,anapproachlaterappliedtothecardiacprocedures.

UNiCompARtmENtAl KNEE ARthRo- plAsty (pARtiAl KNEE)

Similartohiparthroplasty,IHAsawtheadditionofunicompartmentalkneesasawaytoincreaseindividualsurgeonvolumewithoutalongdefinitiondevelopmentprocess.

KNEE ARthRosCopy With mENisCECtomy

KneearthroscopywasIHA’sfirstoutpatientdefinition.Thedecisiontotakeonthisepisodewasinfluencedbythedesireofthehealthplanstotakeonahigher-volumeprocedureandtoaddfree-standingambulatorysurgerycenterstothedemonstration.Movingtotherealmofoutpatientprocedurescausedtheparticipantstorethinkseveralaspectsoftheepisodedefinitionthathadbeendevelopedpreviously.1. NoASAratingcriterion.Foroutpatientproce-

durestheASAratingwaseliminatedasapatientselectioncriterionontheassumptionthathigherriskpatientswouldnothavetheproceduredoneinanoutpatientsetting.

2. Variablewarrantyperiodlength.Whilepartici-pantsinitiallyassumedthatthe90-daywarrantyperiodwouldbestandardacrossdefinitions,theyconcludedthatforthisprocedurea30-dayperiodwouldcoverallrelevantcomplications.Sincethelongerthewarrantyperiod,thegreaterthedif-ficultyinsegregatingrelatedandunrelatedpost-procedureclaims,shorterwarrantyperiodswereusedwheneverpossibleforlaterdefinitions.

3. Afixed-dollarliabilityforcomplications.Withthisdefinition,IHAintroducedtheconceptofapplyinganepisoderateadjustment(apenalty)forcompli-cationsduringthewarrantyperiod.Theapproachwasdevelopedtoaddresstheissuethatacomplica-tionrequiringaninpatientadmissionfollowinganoutpatientprocedureeffectivelycomprisedthesameproblemsasareadmissiontoanotherfacilityfollowinganinpatientprocedure—highcoststhat

couldeasilybecomethepatient’sresponsibilitytopay.undertheepisoderateadjustmentapproach,participantsagreedthatthehealthplanswouldpayforallservicesfromotherprovidersduringthewarrantyperiod,butapplyafixeddollarpenaltytothereimbursementoftheoriginalfacilityifanyofasetofdefinedcomplicationsoccurred.Theamountofthepenaltywouldbenegotiatedindividuallybe-tweeneachhealthplanandparticipatingprovider.

diAgNostiC CARdiAC CAthEtERizAtioNs ANd ANgioplAsty

IHAstartedwithfivepotentialepisodesthatwereeventuallycompressedintotwodefinitions.Thetwodefinitionsallowforthreeseparatenegotiatedepisodesofcare(diagnosticcatheterizationonly,angioplastyonevessel,angioplastytwovessels).Thestartingdefinitionswere:1. Diagnosticcatheterization,nointervention2. Angioplastyinonevessel,baremetalstent3. Angioplastyintwovessels,baremetalstent4. Angioplastyinonevessel,drugelutingstent5. Angioplastyintwovessels,drugelutingstent

Aftermuchdiscussion,thegroupagreedthatsepa-rateepisodepricesshouldapplybasedonthenumberofvesselswithstent(1or2)butnotonthetypeofstentoronhowmanystentswereplacedineachvessel.

Precedentsestablishedduringthedefinitionprocessforthecardiacproceduresincluded:1. patient selection based on pre-procedure set-

ting rather than on diagnosis codes.onecardiacconsultantadvisedthatorganizationswouldwantpatientswhocouldwalkintothecathlabiftheyhadto,thereforethedefinitionsexcludepatientswhowereadmittedtothecathlabfromaninpatientsettingorfromtheemergencydepartment.

2. the exclusion of community-supplied routine

follow-up care.Thehospitalparticipantsadvisedthatpatientsareoftenreferredtotheinterven-tionalcardiologistforjusttheprocedureitself,and


thenreturnedtotheprimarycarephysician.Sincethehospitalcouldnotcontractwiththeseprimaryphysicians,theywouldhavenomechanismtotrackorpayexpensesforroutinefollow-upcareprovidedinthecommunity.Thedefinitiondoesincludefollow-upcareprovidedbytheinterven-tionalcardiologistorhisorhercardiologygroup.

3. Repeat procedures considered a complication.Thedefinitiontreatsrepeatdiagnosticcatheteriza-tionswithintheepisodeperiodas“complications”ofapoorlyperformedoriginalprocedure.

4. Use of the “episode rate adjustment” approach.Thedefinitionappliesthe“episoderateadjust-ment”forcomplicationsthatIHAdevelopedforthekneearthroscopyproceduretoin-patientcardiacprocedures.

Therewasseriouscontentionwithinthegroupabouthowbesttoaddressthemostsignificantcom-plicationthatmayfollowoneoftheseprocedures—anarterialperforationleadingtoanemergencycoronaryarterybypassgraft(CABG).Thefirstdiffi-cultyisthatthereisnoindicatorintheclaimrecordthatdifferentiates:(a)aCABGthatisperformedbecauseofaperforation,from(b)aCABGthatisperformedbecausethatistheappropriatetreat-mentforthelevelofcardiacdiseasefoundduringthediagnosticcatheterization.Secondly,hospitalsstrenuouslyobjectedto:(a)aninitialrecommen-dationthattheCABGwouldbeassumedtoresultfromacomplicationand(b)thedisproportionate

levelofriskassociatedwithtreatingaperforationvs.thereimbursementsreceivedfortheperformingtheoriginalprocedures.Theyarguedthattheriskratiowasmoreakintothepossibilityofanadmissionfollowingasimpleoutpatientkneearthroscopythantotherisksassociatedwithtreatingcomplicationsofakneereplacement.Thedebatewaseventuallyresolvedbyapplyingthe“episoderateadjustment”developedforthekneemeniscectomytothecardiacprocedures.Thehealthplansagreedtothisapproachontheassumptionthataperforationwouldleadtoalargeclaimthatwouldbesubjecttoreviewandthatthereviewwouldrevealthatanepisoderateadjust-mentwaswarranted.

mAtERNity, hystERECtomy ANd CERviCAl spiNE FUsioN

usingtheconsensusprocessesandapprovalmechanismsdescribedabove,IHAcompletedfouradditionalepisodedefinitionsforatotaloftencompletedepisodedefinitionsintheBEPGD.Theseadditionaldefinitionswere:1. Maternitycomprehensive2. Maternitydeliveryonly3. Hysterectomy4. Cervicalspinalfusion

CompletedocumentationonallIHAepisodedefinitionsisavailableat:http://iha.org/episode-

definitions.html.


administrative issues and Their resolution

TheIHAdemonstrationhadanexplicitobjectivetoidentifyandaddressadministrativeissuesinherentinprospectivebundledpayment.Whileauto-adjudicationwastheultimategoal,allparticipantsunderstoodthatmanualprocessingwouldberequiredinearlystagesofthepilot.Administrativeissuesweremanyandcom-plex;addressingthemmanuallyrepresentedsignificanteffortandexpenseforbothhealthplansandproviders.

hEAlth plAN issUEs

1. Avoiding duplicate payments.Thisissue—howtoensurethatfee-for-service(FFS)billssubmittedin-correctlybyparticipatingproviderswerenotpaidinadditiontothefullbundledpaymentmadetothebundlerorganization(typicallythehospital)—wasthenumberoneadministrativepriorityforallparticipatinghealthplans.ToavoidpaymentonFFSbills,thehealthplansneededtheabilitytoturnoffauto-adjudicationforthepatientundergo-ingtheprocedure,meaningtheyneededtoidentifythepatientbeforeanyclaimswerereceived.Thedemonstration“solved”thisproblembymakingthedeterminationofpatientinclusionpartofthepre-authorizationprocess.However,thissolutiononlyworkswhenpre-authorizationisrequiredfortheprocedure.Also,whiletheplanshavetheabil-itytoturnoffauto-adjudicationofallclaims,theycan’tselectivelyturnoffpaymentforonlyexpensesrelatedtotheprocedure.Thelongerthewarrantyperiod,thehigherthelikelihoodofinappropriatedelaysinpaymentonunrelatedclaims,potentiallycausinghealthplanstomissclaimturnaroundtargetsestablishedintheiremployercontracts.

2. Recovering duplicate payments.Healthplansarguedforacontractualprovisionthatwouldal-lowthemtorecoverduplicatepaymentsmadetothebundler.Thebundlerswerehighlyresistanttothisconceptforanumberofreasons,includingthefactthattheywouldhavenocontractualbasis

torecoverapaymentmadetoanon-participatingprovider(e.g.,lab).IHAdidnotincludethisprovi-sionintheBEPGDstandardprovisions,thoughsuchanarrangementmayultimatelyhavebeennegotiatedbetweentheparticipants.

3.Accounting for bundled payments.Healthplansquestionedhowtobookabundledpaymentwithintheiremployeraccountingsystems—treatthewholebundleasahospitalbill?Artificiallysepa-ratethepaymentintophysician,hospitalandotherprovidercomponents?Allofthehealthplansdeterminedthattheycouldnotadequatelyaccountforthebundlesfortheirself-insuredbusinessandelectedtoparticipateinthepilotfortheirinsuredbookofbusinessonly(furtherreducingthepatientpopulationinthedemonstration).

4. Ability to process the claims out of any claim

office.ThenationalplansparticipatinginBEPGDneededtheabilitytoprocessthebundledpaymentclaimsinanyclaimofficesincetheemployerofapatienthavingakneereplacementinCaliforniamightbelocatedelsewhereinthecountry.

5.Benefit design changes.Thehospitalsandphysi-ciangroupsgreatlydesiredthatthehealthplansincentivizepatientstousetheparticipatingphysi-ciansandhospitals,andfavoredthepatientincen-tiveapproachusedinCMS’sACEdemonstration.Thisapproachrequiredaddingbenefitincentivesthathealthplansneededtofileasnewbenefitop-tionswithstateregulators.Healthplansadvisedthatthetypicalcycle-timeforfiling,approval,newcommunicationmaterialsandsaletocustomerswasabouttwoyears,makingtheinclusionofthesechangesimpossiblewithinthedemonstrationpe-riod.Thedemonstrationdidnotincludeanybenefitincentivesforuseofparticipatingproviders.

6. Repeated benefit calculation. AlthoughthehealthplansenvisionedimplementingBEPGDasachangetopaymentonly—equivalenttochangingfroma


perdiemreimbursementarrangementtoaDRGreimbursementarrangementwiththehospitals—theywereunabletoentirelyavoidbenefitadmin-istrationissues.InCalifornia,thepatients’shareofcoinsurancemustbecalculatedontheactualpaymentmadetotheprovider.Additionally,sincebundledpaymentratesaretypicallycalibratedtoanhistoricalaveragecostfortheprocedure,it’spossibleforpatientswhousefewservicestoowemoreasashareofthebundledratethantheywouldhaveowedincoinsurancefortheindivid-ualservices.Similarly,patientswhousemoreservicesthanaveragecansavemoneyunderbundledpayment.Mosthealthplanselectedtoholdthepatientharmlessfortheexistenceofthedemonstration,assessingthepatientthelesserofwhattheywouldhavepaidincoinsur-anceontheFFSbillsvs.thecoinsurancedueonthebundledrate.

7. processing “bundle breakers.”Participantsidenti-fiedanumberofscenariosinwhichapatientwhowasoriginallyconsideredtobeinthebundlewouldbelaterexcluded,breakingthebundleandnecessi-tatingthereprocessingofallclaimsunderFFS.Themostimportantofthesewaslossofcoverageduringthewarrantyperiod.

thE hospitAl pERspECtivE

1. getting the physician bills directly. Inagree-ingtoactasthebundler,thehospitaltookontheresponsibilityforeducatingallparticipatingphysi-ciansandancillaryproviderstoassurethatbillsbesentonlytothehospitalandnottothehealthplan.Italsoseemedlikelythatbothphysicianandhospitalbillingsystemswouldneedmodificationtopreventtheirautomaticallysendingbillstothehealthplanonrecord.

2.paying the physician bills. Thebundlerbecomestheclaimpayerforallcoveredservicesprovidedtothepatientwiththebundleandissubjecttoallstatelawandregulationaroundtimelinessofclaimpayment.

3. Accounting for and reconciling payments within

their own systems.Theprovidersandhealthplanswereanxioustounderstandtherelation-shipbetweenpaymentamountstheywouldhavereceivedunderbundledpaymentversuspaymentstheywouldhavereceivedunderstandardcontractprovisions.Thosecomparisonsrequiredtrackingpaymentstotwodifferenttypesofbillsforthesameservices.

4. Accurately capturing all related services. Similartocapitationpayments,bundledpaymentsbytheirnaturediscouragetheaccuratecodingandreportingofservicesthatwillnotbeseparatelypaid.Ifphysiciansarepaidacaserateforprofes-sionalservices,includingx-raysandothertests,whycreateano-paybillforthoseservices?GivenCaliforniaproviders’previousexperiencewithcapitation,theirsuggestedsolutionwastocon-siderusingexistingencounterdatasystemstocapturebundledservices.Thehealthplanswereopposedtotheideaofhavingtoaddencounterdatatotheirinternalclaimdatatogetanaccurateunderstandingofhowserviceutilizationwasaf-fectedbybundledpayments.

Toaddressthisissue,thehospitalsagreedtocreateapackageoftheindividualclaimsforallservicesprovidedtothepatientandtosubmitallclaimsaftertheprocedurewasperformed.Thehealthplansagreedtoreleasetheentirebundledpaymentamountwhenthefirstbillingpackagewasprocessed.Hospitalsagreedtosubmitasecondpackageofbillsforallservicesprovidedduringthewarrantyperiod,eventhoughatthatpointtheyshouldhavebeenpaidinfullforthebundle.Thehealthplansagreedtoprocesseachofthesebillsas“nopay”claimstoensurecompletedatacapture.

5. Administering the gainsharing program. Partici-pantsrecognizedthatadministeringagainsharingprogramthatwouldbetrustedbythephysiciansrequiredsophisticateddatainfrastructureandre-portingcapabilities.Whilemostallofthepartici-patinghospitalsintendedtousegainsharingwithin


thebundledpaymentdemonstration,noneactuallydid.Asoneexample,HoagHospitalimplementedbundledpaymentthroughthemechanismofajointventurewiththeirphysicians,thusnegatingtheneedforgainsharing.

thE pAth to AUto-AdjUdiCAtioN

Toaddressadministrativeissues,allparticipantsagreedtobeginthedemonstrationusingmanualprocessing.Transplants—whicharetypicallyreim-bursedbycomprehensivecaseratesandarestilloftenpaidmanuallybyhealthplans—providedthemodeladoptedbymostparticipants.Wherepossible,thehealthplanselectedtohaveallbundledpaymentclaimspaidfromtheirtransplantunit.

Giventhemagnitudeandintractabilityoftheadministrativeissues,allparticipantsagreedtoat-tempttoresolveissuesinwaysthatcouldultimatelysupportauto-adjudicationoftheclaims.Auto-adju-dicationwasobviouslydesirableonthehealthplanside,buttheprovidersalsowantedtosubmitclaimsusingtheirexistingbillingsystemsandprocessesforFFS,retainingonlytheresponsibilityofdistrib-utingthebundledpaymentatthebackend.

AtthebeginningoftheBEPGD,therewerenoexistingsoftwaresystemstoauto-adjudicateprospectively-paid,commercialbundledpayment.WhileIHAattemptedtokeepauto-adjudicationinmindduringepisodedefinitiondevelopment—forexample,touseonlyinformationavailabletoaclaimprocesseraspatientselectioncriteria—IHAhadnoupfrontassurancethatitcouldwork.McKessonandTriZettowereinthedesignphaseforbundledpaymentsoftwareasthedefinitionswere

beingdeveloped.IHAinvitedbothvendorstojointhetechnicalworkgroupsothattheycouldcom-mentonnewepisodeparameterswhilethedefini-tionswerestillunderdevelopment.Theinclusionoftheserepresentatives,bothhighlyknowledgeableaboutbundledpayment,wasanenormoushelpintheepisodedevelopmentprocesses.Thevendorscameatthedefinitionwithamuchdeeperunder-standingoftheunderlyingcodingstructuresforthebillsandwereabletosupplytheexhaustivecodesetsfortheepisodedefinitionsthatthehealthplansrequired.Theyofferedsuggestionsforminormodi-ficationstothedefinitionsthatcouldenhancetheeaseofadministration.Bothvendorselectedinde-pendentlytodelivertheirsoftwarewithapre-loadoftheIHAdefinitions,contributingtothespreadofthedefinitionsdevelopedduringthedemonstration.

Duringthedevelopmentofthedefinitions,healthplansindicatedthattheywerenotpreparedtogotoscalewithimplementingthedemonstra-tionuntilthesoftwarewasavailabletoadjudicatetheclaims.Althoughthesoftwarebecameavailableduringthedemonstration,forthemostparthealthplanselectednottoimplementtheclaimprocess-ingenhancements.Planscitedboththeexpenseofamajorsystemupgradeinthefaceofuncertainreturnfrombundledpaymentarrangementsandaninabilitytoimplementtheupgradewithinthetime-lineofthedemonstration.AetnaactedasabetasitefortheMcKessonsoftwareanddeployeditforitsbundledpaymentcontractinsouthernCalifornia,butthesmallpatientpopulationworkedagainstarobusttestofauto-adjudication.


Other issues

REtRospECtivE vs. pRospECtivE pAymENt

Retrospectivevs.prospectivepaymentisaphrasethatconflatestwokeyconceptsinbundledpayments—risktransferandclaimadministration.Eachoftheseconceptsrequiresaseparatedesigndecision.

Intheory,thesetermsconveyachoicebetween(1)makingfee-per-unit-of-serviceclaimpaymentsfollowedbyaretrospectivereconciliationtoabudgetversus(2)suspendingnormalFFSpaymentsinfavorofafixed-feepayment.Inthiscontext,thetermprospectivepaymentisusedinthesenseofMedicare’sInpatientProspectivePaymentSystem(IPPS,i.e.,DiagnosisRelatedGroupmethodology).ForMedicareDRGs,theamountofpaymentispro-spectivelyfixedbutisnotpaiduntilafteratrigger—thehospitaldischarge—occurs.Thisinterpretationcontraststotrueprospectivepaymentapproachessuchascapitation,wherepaymentsaremadepro-spectivelyforapopulation.

AtthetimeIHAbeganitsbundledepisodepay-mentdemonstration,thetermretrospectivepaymenthadcometomeantheshared-savingsapproachthatPRoMETHEuSPaymentwasusingintheirearlypilots.InthePRoMETHEuSmodel,FFSpaymentswereretrospectivelyreconciledagainstabudgetfortheepisode,withprovidersandpayerssharingsavings(typically50-50)iftotalpaymentswerelessthanthebudget.Payersabsorbtheentirelossifpay-mentsaregreaterthanthebudget.Inotherwords,providersshareonlyupsiderisk.ThecontrastingmodelatthetimewastheCMSACEdemonstrationthatprospectivelysetafixedfeeforeachepisodeandrequiredatwo-wayriskshare;providerswerepaidonlytheagreeduponamountandretainedallsavingsorabsorbedalllossestotheextenttheactualcostsoftheepisodevariedfromtheagreeduponreimbursement.Inthismodel,thesavingstoMedicarewerealsoquantifiableinadvanceandassuredthroughthemechanismofsettingthefixedpaymentatadiscounttotheIPPSpayment.

IHAelectedtoapplyaprospectivepaymentmeth-odologywithinitsdemonstrationproject.ParticipatinghealthplansadvocatedforthisapproachinreactiontotheperceivedcomplexityofthePRoMETHEuSPaymentapproachcomparedtotheseemingeleganceoftheACEdemonstration.Inaddition,thosewhohadlivedthroughthe90’seraofrancorousproviderrela-tionsvoicedstrongoppositiontotheideaofeveragaintyingreimbursementtoaretrospectiverec-onciliationprocess.Healthplansalsoadvocatedforthetwo-wayrisksharebecauseitofferedstrongerincentivesthanashared-savingsapproach.Further-more,participantsfeltthatinlightofCalifornia’slonghistoryofmanagedcareandcapitation,tobeginwithashared-savingsapproachwouldactuallyrepresentastepbackwardsalongthepathofprovideraccountability.Providers,lookingtothesuccessesreportedbyACEdemonstrationparticipants,wereeagertotestthatmodelintheirmarketsandthere-forereadilyagreedtotheapproachthathadbeenusedinACEoverthePRoMETHEuSPaymentretrospectivereconciliationapproach.

Insummary,IHAmadeadecisionaboutadmin-istrationthatwasbasedprimarily,thoughnotexclu-sively,onthepreferredapproachtorisktransfer.Thisdecisionwaslatercalledintoquestion.HealthplansbegantounderstandthecomplexitiesofsuspendingFFSclaimpaymentinfavorofprospectivepaymentandthesystemramificationsbeyondclaimadjudi-cation.Concurrently,providersbegantounderstandboththeextentoftherisktransferandtheaddition-alexpenseandliabilityofassumingclaimadjudica-tionresponsibilitiesinastructurewhereoneentity(typicallythehospital)acceptsateampaymentthendisbursesindividualpaymentsforallprovidersparticipatinginanepisode.

Thedefinitionallinkbetweenthepaymentmeth-odologyandtherisk-shareapproachhassincebeenbrokenbytheCMSInnovationCenter’sBundledPaymentsforCareImprovementinitiative(BPCI).


AllBPCImodelsrequiretwo-wayrisksharing,butthreeofthefourmodelsuseretrospectiverecon-ciliationandoneusestheprospectiveapproachpioneeredintheACEdemonstration.Fromanadministrativeperspective,bothapproacheshavesignificantprosandconstobebalanced.Whatisbeingbundledmakesadifference—forexample,the

prosofprospectivepaymentmayoutweighitsconsonanepisodeforawell-definedteamofprovidershandlingaprocedure,butnotwhenbundlingpay-mentforchronicconditions.Similarlyalocalhealthplanmaybeabletoapplynon-standardclaimpay-mentprocessesmorereadilythananationalplanwhereclaimsarehandledbydifferentclaimoffices.

Approach pros Cons

clearly aligns payment with intent; reim-bursement is made to a team of providers delivering care during a defined episode.

Provides the bundler with a real-time line of sight into what services are being provided to patients covered by the demonstration (because the bundler receives the bills and pays the subcon-tracting providers).

Providers are able to maintain confiden-tiality into the distribution of payments among the care team.

in combination with a pre-authorization process, clearly identifies up front which patients will be included in the demon-stration, allowing for enhancements such as collecting copayments based on the bundled price. 2

no disruption to provider billing processes; all providers bill the health plan.

health plan continues to capture all services provided to patient and can report them to their employer customers.

allows application of claim data-based risk-adjustment methodologies at the time of payment reconciliation.

Providers are required to change their billing practices. For example, participating physicians should bill the bundler rather than the health plan.

Disrupts existing payment processes at the health plan; requires new adjudication software to make scalable.

requires new claim administration processes and expense for the bundler, and subjects the bundler to state claim adjudication regulation.

health plans have less visibility into how payments are distributed, so they are less able to report to their employers what care has been provided to patients (the capitation data dilemma).

Payment is reconciled long after care is received, limiting the usefulness of the payment change as a tool to incentivize care changes.

requires new processes for health plans to credibly report and reconcile payments to the agreed upon payment amount.

requires new processes for the bundler to understand bills and payments across organizations in order to accept or challenge retrospective health plan payment adjustments.

agreements that included downside risk may require use of a health-plan-imposed withhold or provider-based reserves to refund over-payments to the health plan.

prospective

Retrospective

2.Incontrast,inretrospectivereconciliation,copaymentsareappliedtotheindividualservicesandmaybeoverorunder-appliedbasedontheactualbundledpaymentamountpostreconciliation.


RisK ANd stop loss

Hidingbehinddefinitionalissueswasalargelyunex-pressedcontestofwillsbetweenthehealthplansandthehospitalsovertheissueofstop-lossprotectiononepisodepayment.Theissueremainedunstatedingroupdiscussionbecausestop-lossisapriceissueandIHAcouldnotaddresspriceduetoanti-trustconcerns.ParticipantsalsospecificallyrequestedthatIHAnotaddressthisissuebecauseofitssensitivity;stoplosswasanongoingsubjectofindividualnegotiationsbetweenspecifichospitalsandthehealthplansovertheirentirecontracts,notjusttheirepisodepaymentcontractamendment.

WhileIHAcouldnottakeonthisissueinanysub-stantiveway,itwasclearthatmanyofthemostconten-tiousissuesaboutrisktransfer—forexample,hospitalliabilityforreadmissionstoanotherfacility—couldhavebeenresolvedmuchmorequicklyhadthehealthplansandhospitalsbeenwillingtodiscusssomeexplicitformofriskprotectionforparticipationintheBEPGD.The“EpisodeRateAdjustment”concept—apredefinedpenaltyamountforcomplications—thatIHAdevelopedinthecourseofdefiningthefirstoutpatientepisode(seekneemeniscectomy,above)effectivelyprovidedstop-lossprotectionagainsttheriskofanadmissionfollowingaprocedureperformedinanambulatorysurgerycenter.IHAlaterappliedthissameprovisiontoaddressavirtualproviderrevoltagainsttheconceptofacceptingriskforanarterialperforationfollowingaroutinediagnosticcardiaccatheterization.

gAiNshARiNg

TheprimarydrawoftheBEPGDfornearlyallproviderorganizationsseemedtobetheopportunitytoimple-mentagainsharingprogramwiththeirphysicians.Theparticipantsexpectedthatthisgainsharingprogramwouldapplyonlytocommercialpatients,andthatitwouldbestructuredsimilarlytothoseemployedbythehospitalsparticipatingintheACEdemonstration.WhileIHAwasunabletoadviseparticipantswithconcernsaboutthelegalityofanticipatedgainsharing

programs,IHAdidretaincounseltopresentageneralunderstandingoflegalissuesrelatedtogainsharing.IHAalsoorganizedawebinarontheobjectivesforgainsharing,anappropriatestructureforagainsharingprogram,andthespecialconcernsofbothhospitalsandphysiciansinconsideringgainsharing.3

Gainsharingisonepossiblestrategytosup-portclinicalalignmentbetweenahospitalanditsphysicians,withothersincludingemploymentagreements,co-managementagreementsandjointventures.ToIHA’sknowledge,noparticipantinBEPGDelectedtoimplementaformalgainsharingprogram.Theadministrativeeffortofbuildingandsustainingagainsharingprogramforademonstra-tionwithlowpatientvolumewascertainlyoneconcernforparticipants.However,thedrivingforcebehindthisdecisionmighthavebeentheavail-abilityofothermechanismsforphysician/hospitalengagement.Asexamples:(1)HoagHospitalpar-ticipatedinthedemonstrationviaitsjointventurebetweenthephysiciansandhospital;(2)thesurgerycenterswereownedbythephysiciansthemselves,makinggainsharingimplicit,and(3)SutterHealthstructuredparticipationtoincludeseparatecon-tractsbetweenthehealthplanandthehospitalsandthehealthplanandphysicians.

stAtE REgUlAtoRy CoNCERNs

InCalifornia,plansthatinvolvepre-paymentforhealthcareservicesareregulatedbytheDepartmentofManagedHealthCare(DMHC).PPoplansaretypical-lyregulatedbytheCaliforniaDepartmentofInsurance(DoI)butforreasonsofhistoricalartifact,theDMHCalsoregulatesthePPoplansofBlueShieldofCalifornia(BSC)andAnthemBlueCross,earlycontractingpartici-pantsintheBEPGD.

Giventhisdualregulatorystructure,IHAwasconcernedthatthedesignofthedemonstrationproj-ectnotsubjectPPoplanstoadditionalregulationbyDMHC.Furthermore,itwasimportantthattheparametersofthedemonstrationwouldallowBSC

3.http://iha.org/pdfs_documents/bundled_payment/Gainsharing-Webinar-Physician-Hospital-Relationships-in-orthopaedics.pdf


andAnthemBlueCrosstosatisfyallPPoregulationsimposedbyDMHCexclusivelyontheirplans.

IHAmetearlyonwiththeDirectorofDMHCtodiscussthedesignoftheprogramandwhetheritmightinvokeDMHCregulationofPPoplansotherthanthoseofBSCandAnthemBlueCress.Thekeyissuespresentedwere:1. Thereisnopre-paymentforservices.Thefull

bundledpaymentwouldbemadeafterdischargefortheinitialprocedure,uponreceiptofapost-dischargeclaimspackageforallservicesprovideduptothatpoint;afinalpackageofclaimsissubmit-tedforservicesprovidedduringthepost-dischargeperiod(includingchargesforcomplicationsandre-admissions)butnoadditionalpaymentisprocessed.

2. Notransferofinsuranceriskisinvolved;episodepaymentismadeonlyifandwhenaprocedureisperformed.

3. Decisionsaboutthenecessityofthesurgeryaremadethroughcurrentclinicalandmedicalneces-sityreviewprocessesandwouldbeunaffectedbythechangetoapaymentmethodologybasedontheentireepisodeoftreatment.

4. Episodedurationwouldnotexceed90days,andmightonlybe30or60daysdependingontheintensityoftheprocedureandwhencomplicationswouldbemostlikelytooccur.

TheDMHCagreedwithIHA’sassessmentoftheissuesandlaterprovidedwrittennotificationthatthedemonstrationasproposedwouldnotinvokeKnox-Keenelicensurerequirements.

Inaddition,theDirectorexpressedstrongsupportforcreatingaregulatoryenvironmentinCaliforniathatwashospitabletoinnovativedemon-strations,particularlythosethathadthepotentialtoimprovebothqualityandpricetransparency.Theideathatbundledpaymentsforprocedurescouldallowconsumerstomakeapples-to-applesproviderpricecomparisonsforapre-definedbundleofserviceswasparticularlyappealing.Toback-upherexpressionofsupport,theDirectordesignated

anassistantdeputydirectorasIHA’sprimecon-tactwithinDMHC.ThisindividualbecamedeeplyfamiliarwiththeprojectandactedasDMHCliaisontothedemonstration,facilitatingconversationswithothersatDMHCwhowouldreviewtheactualcontractsubmissionsbytheplans.

BecauseIHAisnotahealthplanregulatedbyDMHC,anyplanwithPPoproductsundertheDepartment’sjurisdictionneededtoindependentlynegotiateapprovalofitsbundledpaymentagree-mentswithDMHC.WhileIHAwasnotprivytoanydiscussionsbetweenDMHCandthehealthplans,IHAunderstoodthattheprimaryconcernsexpressedbytheDepartmentwere:1. Howdidtheplanintendtocommunicatetotheen-

rolleethathewasaparticipantinapilotprogram?2. Whatinformationwouldtheplanprovidetothe

enrolleeonthesubjectoftheimpactofbundledpaymentoncoinsuranceamounts?

3. Whatoversightdidtheplanintendtoprovideoverthebundler’spaymenttosubcontractingphysi-ciansandotherproviders[becauseofimplieddelegationofrisk]?

4. Whatstepswastheplantakingtoensurethatthehospitalhadadequatereservestomakethesepayments,andthattheactualclaimprocessesandpaymentscompliedwithexistingregulationsgoverningclaimpayment?

Theneedtoaddresstheseregulatoryconcernsnegativelyimpactedthedemonstrationtimeline.AnthemBlueCrosshadwithdrawnfromthedemon-strationearlyon,butBSCengagedinseveralmonthsofbackandforthcommunicationwithDMHCbeforetheywereabletoimplementtheirBEPGDcontracts.

CoRpoRAtE pRACtiCE oF mEdiCiNE pRohiBitioN

Californialawprohibitsthepracticeofmedicinebyindividuals,organizations,andcorporationsthathavenotbeenlicensedtopracticemedicine.Thisstatutegenerallyprohibitshospitalsfromhiringoremploy-


ingphysiciansorotherhealthcareproviders.TheconcernaroundCorporatePracticeofMedicineforBEPGDwaswhetherahospitalasprimecontractor(thebundler)couldbeconsideredinviolationofthisprohibitionbyvirtueofexecutingsubcontractswithphysicianstoprovideserviceswithintheepisode.Toaddressthisissue,IHA’ssamplecontractsclearlyestablishedthattherelationshipbetweenpartieswasthatofgeneralcontractortosubcontractorratherthananemploymentagreement.Inthesamplecontracts,thegeneralcontractoracceptspaymentfortheentirebundle,butactsonlyasanagentofthesubcontractorinacceptingandthendispersingpaymentforservices.TheparticipatinghospitalsworkedwiththeirinternallegalcounseltoassesswhetherthistypeofcontractualagreementwouldadequatelyaddressCorporatePrac-ticeofMedicineconcerns.Intheend,thedominantmodelchosenbythehospitalswastoexplicitlysplittheepisodeservicesandpaymentsintotwocomponents—abundleandpaymentforprofessionalservicesandabundleandpaymentforfacilityservices.InadditiontoaddressingtheCorporatePracticeofMedicineprohibi-tion,thisapproachsatisfiedtheconcernsDMHChadexpressedabouthealthplandelegationoffinancialrisk.

popUlAtioN sizE

Populationsizeforepisodepaymentdemonstrationsneedtobeconsideredfromseveralperspectives:1. Whatisanadequatetotalpopulationofpatients

tomakethedemonstrationmeaningful?Thatis,whatgetstheattentionofthemarket?

2. Whatvolumeofproceduresisnecessaryforahos-pitaltoadequatelyspreadtheriskofparticipation?

3. Whatisanadequatepopulationofpatientstoincentivizeaphysicianorgroupofphysicianstochangepractice?Thatis,whatgetstheattentionofthedoctors?

Thenumberofkneeandhipproceduresinclud-edintheBEPGDultimatelyprovedinsufficienttoaddressanyoftheseperspectives.

IHAparticipantsinitiallyestimatedthatthe

demonstrationwouldincludeabout500PPojointreplacementproceduresperyear.AlthoughIHAwasawareofsignificantmarketfragmentation—kneereplacementssurgeriesareperformedinmorethan300hospitalsinCalifornia,withonlyahandfulperformingover500peryear—thedemonstrationbenefitedfromtheparticipationoftwohospitalswithhighorthopaedicvolumes:HoagHospitalandCedars-SinaiMedicalCenter.Eachofthesehospitalsaveragedabout1800dischargesinMS-DRG470annuallyacrossallpayersandcontracttypes.

TheearlywithdrawalofAnthemBlueCross,adominantPPopayerinthesouthernCaliforniamarket,wasaseriousblowtotheestimate.oneparticipatinghospitalinsouthernCaliforniaindi-catedthatAnthemBlueCrossmightrepresentasmuchas50%oftheirPPopatientvolume.

IHApursuedsolutionstoincreasethevolumeofkneereplacementsinthedemonstrationonseveralfronts.First,toincreaseoverallvolume,IHAaggres-sivelyrecruitedhigh-volumehospitalsandsucceededinbringingseveralkeysystemsintothedemonstra-tion.Toincreasevolumeperparticipatingorthopae-dicsurgeonandperhospital,IHAaddedepisodesforhipreplacementandforpartialkneereplacement.Workingwithonehealthplan,onephysicianorgani-zationandonehealthsystem,IHAalsodesignedanHMo/MedicareAdvantageversionofthekneeand


While participants debated at length about the impact of various clinical exclusions on population size, clinical exclusions were largely extraneous to popula-tion size. One definitional exclusion proved the exception to this rule. An Optum analysis showed that requiring the patient to maintain coverage with the same health plan during the 90-day episode period eliminated roughly 10% of potential episodes from the analysis pool. This finding highlights the need to carefully consider the impact of coverage changes during an extended warranty period.


hipreplacementepisodes.TheotherhealthplanshadlittleinterestinanHMoversionofBEPGDhowever,feelingthatefficiencyissueswereadequatelyaddressedbyexistingcapitationarrangements.

Anobviousimplicationofthelowpatientvolumesisthatthedemonstrationdidnotgenerateenoughadequatesamplesizetoallowforarigorousimpactevaluation.Italsoexposedhowmarketfragmenta-tioncanimpactpaymentreforminitiativesasawhole.Hospitalswereaskedtoundergoasignificanteffortwiththeirphysiciansthatwouldlikelynotpayoffin

anyincreasedvolume.Healthplanswerefacedwiththedauntingadministrativechallengesofbundledpaymentwithonlymodestpotentialforcostsavings.

Demonstrationmomentumslowednoticeablyasvolumeissuesbecameapparent.ParticipantsfacedwithcompetingopportunitiesforpaymentreformundertheAccountableCareActincreasinglychosetodevotethoseresourcestothedevelopmentofAccountableCareorganizationsandtopreparingfortheacquisitionofnewpopulationsthroughtheinsuranceexchangeandCalifornia’sdual-eligibledemonstration.

closing Thoughts

IHA’sBundledEpisodePaymentandGainsharingDemonstrationdidnotsucceedinitsambitiousgoaltorapidlyimplementepisodebundledpaymentacrossmultiplepayersandhospital-physicianteams.However,thedemonstrationdidexposeandaddressthemyriaddetailsnecessaryforsuccessfulbundledepisodepaymentimplementation,producingawealthoflessonslearnedaswellasusefulresources.Thedemonstration:1. Producedtencode-basedepisodedefinitionsthat

representedastrongconsensusacrossparticipatinghealthplans,hospitalsandphysicianorganizationsonhowperformanceriskmightbeprospectivelytransferredtoproviderswithinthecontextofdiffer-entaccountabilityinitiatives.Thedefinitionsprovedadaptabletoothergeographiclocations,asdemon-stratedbytheWisconsinPaymentReformInitia-tive’sabilitytoimplementthetotalkneearthroplas-tydefinitionwithonlymodestmodifications.

2. Developedextensivespecificationsforhistoricalcostanalysisandilluminatedflawsintheapproachofusingretrospectiveepisodegrouperstodefineprospectiveepisodepayment.Thedataapproachbywhichhealthplanscreatedconsistentbutin-dividualizedhistoricalaveragecostreportsprovedcumbersomebutfeasible,andallparticipantsgainedinsightintothedistributionofepisodecosts.

3. Definedandsuccessfullydeployedacontractingstructurewithacommonframeworkbutindividu-allynegotiatedtermsthatsatisfiedbothcontract-ingpartnersandCaliforniaregulators.Contracttemplatesdevelopedforthedemonstrationhavebeenadaptedandusedbynationalhealthplansandparticipantsinotherbundledpaymentinitiatives.

4. uncoveredandaddressedthechallengestoelectronicadjudicationofepisodebundledpay-ments,showingthatprospectiveepisodepay-mentisadministrativelyfeasible,andprovidingaframeworkforfurthermarketdevelopmentofadministrativesolutionstoaddressthechallengesofpaymentreform.

Collectively,IHA,demonstrationparticipants,andtheirclinicalandtechnicalexpertscreatedasetofvaluable,practicalaidsfortoallembarkingonthechal-lengingpathtobundledepisodepaymentimplemen-tation.IHAacknowledgesandappreciatestheuntoldhoursvolunteeredbydemonstrationparticipantsaswellasthecontributionsofitsclinicalconsultants.Eachofthesecontributorsbroughtnotonlyessentialtechni-calknowledge,butalsoafirmbeliefthatphysicians,hospitalsandhealthplanscouldworktogethereffec-tivelytoimprovecarequalityandefficiencyundertheframeworkofabundledepisodepaymentprogram.


ABoUt thE AUthoR

WeslieKary,MPH,MPP,servedasIHA’sProgramDirectorforEpisodePaymentfrom2008through2011,aperiodcoveringtheoriginaldesignoftheBundledEpisodePaymentandGainsharingDemonstration.Ms.KarycurrentlyisaPrincipalProjectSpecialistintheHealthSystemsInnovationGroupatAmericanInstitutesforResearch(AIR).

ABoUt thE iNtEgRAtEd hEAlthCARE AssoCiAtioN

TheIntegratedHealthcareAssociation(IHA)isanot-for-profitmulti-stakeholderleadershipgroupthatpromotesqualityimprovement,accountabilityandaffordabilityofhealthcareinCalifornia.IHAleadsregionalandstatewideinitiatives,includingtheCaliforniaValueBasedPayforPerformanceProgram.Moreinformationandotherresourcesareavailableatwww.iha.org.

ACKNoWlEdgmENts

ThisprojectwassupportedbygrantnumberR18HS020098fromtheAgencyforHealthcareResearchandQuality.ThecontentissolelytheresponsibilityoftheauthorsanddoesnotnecessarilyrepresenttheofficialviewsoftheAgencyforHealthcareResearchandQuality.TheauthoracknowledgestheassistanceandthoughtfulcommentsofJettStansbury,DirectorofNewPaymentStrategiesandTomWilliams,PhD,PresidentandCEo,attheIntegratedHealthcareAssociation.

Documents

Bundled Episode Payment and Gainsharing Demonstration · Bundled Episode Payment and Gainsharing Demonstration | Technical White Paper 5 even for services that were provided during