Blog, The Hospital Finance Podcast®

Three ways to succeed under emerging payment models [PODCAST]

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Hospital_Finance_Podcast smallIn this episode, Maria Miranda, Director of Emerging Payment Models at BESLER Consulting, discusses the three areas hospitals can explore to succeed under emerging payment models.
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Michael Passanante:   Hi! This is Mike Passanante. And welcome back to the Hospital Finance Podcast. We’re glad you could be with us.

Today, I’m joined by Maria Miranda who is the Director of Emerging Payment Models here at Besler consulting. And Maria is going to talk with us about what we see as the three pillars if you will for success under emerging payment models.

Maria, welcome to the podcast.

Maria: Thank you Mike.

Michael: So, let’s just jump in with our first question. Can you talk to us about some of the ways in which a participating hospital can improve their chances for success under CJR or other mandatory bundled payment programs.

Maria: Sure! So, the way we see it, Mike, just trying to keep it very high level, there are really only three ways that a hospital can improve their standing with the CJR program.

And one of the first things that they can do is reduce their internal cost. And they need to do that in order to remain profitable.

They also want to reduce the post-acute care cost. And that’s very important because that makes up a very large portion of the episode. And they can do that either directly or indirectly by working with post-acute care providers.

And then third, but not least, they want to improve their quality scores and this is going to have a direct impact on their reconciliation.

Michael: So, let’s get into each of these three pillars as you mentioned.

First off, with regards to cost, why is it important for a participating hospital to reduce their internal costs? If that cost plays no role in the reconciliation for CJR for instance.

Maria: Sure. So, at the end of the day, Mike, the hospitals are going to be accepting less money for the same services unless, somehow, they’re able to significantly reduce post-acute care cost which is going to be very difficult because hospitals are not used to worrying about what happens after the patient leaves the hospital.

So, one of the first things that they can do is look at their own internal cost. The program is going to take a discount right off the top. So right from the very beginning, you’re starting off with a lower payment, a lower DRG payment—not DRG, I’m sorry, a lower target rate.

You’re already assuming risks because any patient that you’ve discharged in October, their 90 days is over in 2017. So even though you’re technically in performance year one, any patients that you’ve discharged recently are actually in performance year two. So you’re already accepting risk on those patients.

If you go over your target rate, you’re going to have to pay back CMS for that amount. So, realistically, you have to try and stay profitable and the way to do that is to reduce your internal cost.

Private payers are also jumping on board. We know of several payers—Humana, for example, is already partnering with providers to use bundled payments for hip and knee replacement which is very similar to CMS’ CJR and Cigna also offering episodic bundled payments for hip and knees.

So, with all of these pressures on the hospital to continually reduce their payment, it’s just wise to start internally. Start from there and then work your way out.

Michael: So, let’s unpack that a little bit. What are some of the ways that a participating hospital can reduce their internal costs specific to the CJR program?

Maria: Okay. So, reducing costs is not new to providers. Ever since the inception of DRGs, hospitals realized that they had to reduce that cost because their payment wasn’t going to change. You’re just going to get paid that same DRG.

So, it’s the same type of concept with the episode payments with the bundled payments except that now, you’re responsible for 90 days post discharge.

So, there are a couple of things that a hospital can do.

The first thing you can do is reduce your length of stay. Now, length of stay is a little tricky because if these two DRGs that are part of CJR are also both included in Medicare’s Transfer DRG program, so if you go below a certain day threshold, you could kick that case into a transfer DRG category which means you’re going to get paid much lower than your regular DRG.

There are also concerns that if you reduce your length of stay by too much, you could inadvertently cause readmissions although there are really no evidence of that that we’ve seen.

But realistically, if we look at hospital cost, a great deal of that cost is fixed. By reducing your length of stay, you’re able to reduce the variable piece of that episode. So, that’s one thing that you really want to look at.

The other thing that you can do—and again this is not new to the hospitals—is you want to reduce your cost of implants.

Now, hospitals have been doing this for quite some time. And the way that they’ve done that is by reducing the variability within how many vendors you’re dealing with, trying to reduce the actual cost of the implant depending on the size of the organization.

A lot of hospitals have been able to leverage their size, have been able to work with vendors and say, “Unless you can actually meet this price stand point, we’re not even going to consider those. We’re not even going to consider your products.”

However, you can take that one step further.

I just came from a CJR boot camp in Florida and there were several large providers there. There is one provider—specifically from New York—that was using a matrix, if you will, as part of their care redesign.

So, what they did was they actually looked at all of the devices, the vendors that they were using and they broke down all of their devices by brand and model, and then specifically broke them into three different categories, whether they were standard, medium or high.

Then they went in and they took their patients. And based on the patient’s age, their BMI and their level of activity, they basically put this matrix together that says, “If you fall into this category, you get this type of implant.”

Now, that’s just a guide because you’re not really telling physicians which implant to use. But just by doing that they were able to reduce the amount that they were spending on implants because not every single patient needs that high caliber implant that you might use on an athlete for example.

It’s also important because different devices are made of different materials and some patients may be allergic to some materials. There are different reasons why you might not want to use a specific device on a patient. You really want to use the right device on the right patient.

Aligning that and getting your cost under control are two very important ways of reducing that total implant cost.

Michael: So that’s sort of step one, costs.

Now, the second item that you talked about was post discharge. So, in that vein, why do you think a hospital would want to collaborate with downstream providers?

Maria: Well, CMS estimates that 40% to 50% of your cost in a CJR episode is related to that post-acute care. It’s a very important area to hospitals. And as I’ve mentioned before, hospitals have never really focused on this before.

This is new ground. This is something that they really do need to concentrate on because they’re accepting that full responsibility for going over the target price.

Michael: Kind of digging into this some more, can you talk about some of the strategies that a provider might implement to address the issue of high post discharge expenditures?

Maria: Sure. So, I think when it comes to any of these programs, it really starts with the patient. It’s the quality of care. It’s engaging the patient. At the end of the day, you want to make sure that your finances are in place, but it really starts with engaging the patient.

Hospitals use a form of prehab. This can be onsite workshops, training classes, educational materials, perhaps interactive tools.

You need to engage the patient from the very beginning because evidence shows that a patient that is well informed, a patient that’s in the best shape of their life, they’re going to do better during the surgery, they’re going to have shorter recovery periods.

You really want to get that patient involved from the very beginning. Have them understand what to expect in surgery, what to expect after surgery. You want to plan ahead, so that you avoid some of those issues on the back end.

So, you really want the patient to be physically and mentally ready to have that surgery. That’s really important.

So again, patient engagement is first and foremost.

You also want to try to reduce that readmission. Again, that’s not new to hospitals either. Hip and knees have always been part of that Hospital Readmissions Reduction Program. So, hospitals have already been paying attention to how to reduce the readmission. But you really want to dig in and try and figure out what the root causes of those readmissions are.

For these specific patients, you want to dig and find out if there was a readmission, what was the reason for that readmission? What was the discharge status? Which providers were involved? If there was a post-acute facility involved?

You really want to drill down into a lot of that data that you have, so that you could try and figure out what you can do to change that going forward.

And then the other thing that you also want to do is you want to find out where your patients are going. You want to make sure that you’re directing them to high quality post-acute care services.

While you can’t tell the patient where to go, you can certainly guide them and give them information and let them know if you are collaborating with any post-acute care providers. You can advise them of quality.

As we mentioned before, quality is at the core of CJR.

One of the things that CJR has done is that they’ve included certain waivers.

The SNF waiver is one that was included. And what that does is it allows you to not have to wait the full three days of in-patient care before the patient is covered for SNF.

However, there’s a caveat to that in that the SNF provider has to have three stars or better.

I just read an article recently of the Kaiser Family Foundation. They performed an analysis of Nursing Home Compare in 2015. They found that over 30% of New Jersey SNFs only have a star rating of one or two. In New York, that percentage is 40%. So that’s alarming.

One, because if you’re not discharging to high quality providers, you can end up with readmissions, you can end up with other risk complications. And then, again, unless that SNF provider is three-stars or better, you can’t take advantage of that waiver under CJR.

So now, you can collaborate with these downstream providers. You can do that either formally or informally.

CJR does allow you to enter into a formal contract—a collaborator agreement as they call it. However, there are a lot of requirements that CJR puts around that.

So, you really want to get an attorney involved because there are, again, a whole lot of requirements. It’s not very easy to do that.

But a lot of hospitals that we’re talking to are really taking more of a wait-and-see attitude with this at the time.

So, there are ways to informally collaborate as well. That’s what we’ve been hearing from providers.

Michael: So, we’re going to touch on the third element of this, if you will, and that’s quality. You’ve already alluded to that. These are sort of inseparable in some ways. One leads into the other.

So as we think about quality, can you talk to us about how improving a quality score can help you become successful with a program like CJR?

Maria: So, quality as I mentioned before, impacts your reconciliation directly.

First and foremost, if you don’t meet a specific score within the CJR program, you may not qualify for a reconciliation payment regardless of how well you do on the financial side. So that comes first.

And then once you do calculate your score, depending on how high your score is, CMS will use that to determine what discount they’re going to apply to your target rate. So you want to try and keep that discount as low as possible because the higher your target rate, the more able you are to keep your cost within that target rate.

Michael: What can a hospital do to improve their scores?

Maria:  So there are a couple of things that they can do.

The hip and knee risk complication rate makes up 50% of your score. It’s important to understand what’s reported and similar to the readmissions, what the underlying causes might be of high complication rates.

The one that’s a little more difficult is HCAHPS. HCAHPS make up 40% of your score. HCAHPS can be very subjective because it’s based on the patient’s perception of what good service and the patient’s satisfaction. Again, that can be very subjective.

But there are a couple of things that you can do. Some hospitals are accredited. Their hip and knee program is accredited by JCO. If you’ve been accredited, one of the first steps that you can probably do is look at your latest survey results. What recommendations were made during that survey? And what steps has the hospital taken based on those recommendations?

That’s probably a good first step, just to see how you scored under that survey and what specific recommendations were made.

The other thing that you can do is look at your own hospital position or policy on HCAHPS.

If you were to do a review of the cases, you might want to determine what percentage of the cases actually followed the hospital’s policy, what was actually documented in the patient’s file versus what the patient reported?

These are just good ways of starting out just to see what you have been doing so far and what you can do to improve in that sense.

The other thing, how are your surveys actually being administered? Is it an in-person phone call? Is it an email or is it snail mail?

Studies have shown that you probably get a better result if you actually speak to the patient because a lot of people don’t really want to give you a bad score if they’re actually speaking to you on the phone. So that’s actually a strategy that has been used.

The other 10% of your quality score comes from Voluntary Patient Reported Outcomes data.

It’s two points out of the 20-point scale. It’s an all–or-nothing.  You have to report on at least 50% or at least 50 patients within the first year of the program. And you’re required to gather the information before surgery, and then after surgery, 9-12 months after the patients had the surgery.

There are a few different options for collecting the information, so it’s important for you to familiarize yourself with the different forms that are available.

And again, these all goes back to getting the patient engaged. It’s a lot easier to get a patient to complete a survey when they’ve been engaged from day one and they’ve gotten all that education, they’ve been in touch with the clinicians after the fact.

It’s a lot easier to get a patient that’s been involved from day one to complete a survey about the hospital than one that hasn’t been.

Michael: Maria, thank you for helping us understand how hospitals can be successful under emerging payment models.

Maria: Great! Thank you.

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