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Experts Detail Disruptive Effects of Bundled Payments for Hip and Knee Surgeries

Hospitals likely to drop skilled nursing facilities to reduce risk of penalties

Hospitals and health systems are expected to respond quickly to the announcement last week that the Centers for Medicare & Medicaid Services (CMS) will soon require bundling of reimbursement for hip and knee surgeries, with profits tied closely to costs and quality metrics. With outcomes dictating reimbursement levels, postoperative facilities that can’t make the grade are likely to be cut loose, according to a report posted on the HealthLeaders Media website.

The CMS move is not surprising, says Mark Bogen, senior vice president of finance and CFO at South Nassau Communities Hospital in Oceanside, New York. Under the initial demonstration project set up through CMS, he notes, many providers selected diagnosis-related groups 469 and 470 (major joint replacement or reattachment of lower extremity, with and without major complications or comorbidities) as a way to test moving toward a value-based payment system.

Through the demonstration project, CMS determined that more than half of the cost of providing care for joint replacements occurred after surgery, Bogen notes, with the bulk of that cost occurring in either the acute inpatient rehabilitation units or the sub-acute rehabilitation units of skilled nursing facilities (SNFs).

“In typical CMS style, they have decided early into the demonstration project to move forward without waiting until all the results are in. This was similar to a number of years ago when CMS put together a demo project for the recovery audit contractors utilizing California, Florida, and New York, and before the demo period ended, they announced the expansion nationally, as the early returns showed significant recoupment back to the Medicare Program,” Bogen says.

The evidence to support bundled payments as a more cost-effective alternative to traditional fee-for-service is clear, says Deirdre Baggot, PhD, former lead for the CMS’s Acute Care Episode Demonstration (ACE) Bundled Payments Pilot. She says the bundling is long overdue.

The effects of the CMS move may be seen soon, Baggott notes.

“On the hospital side, we can expect to see demand destruction in areas such as diagnostic testing, hospital stays, and avoidable readmissions, which is a good thing,” she says. “Post-acute providers will see a significant hit to inpatient rehab and [SNF] utilization as providers search for lower-cost alternatives, such as home health services.”

Hospitals are likely to cut out their one- and two-star SNFs to mitigate the risk of penalties during the post-discharge period, says David Friend, MD, MBA, consulting managing director with the Center for Healthcare Excellence and Innovation of BDO Consulting in New York City. Friend expects 25% of SNFs to close soon, while medically advanced SNFs will flourish.

The SNFs most likely to close are those that have low star ratings, lack information technology (IT) integration with hospitals, have poor physical therapy, lack full-interact clinical protocols, have poor physician alignment, and lack a full-time medical director rounding on patients every day, he says.

Baggot agrees that SNFs will be squeezed, but she expects more of a tempered response from hospitals and health systems.

“While I don’t see hospitals severing ties per se, as there is still an element of patient and family choice, they will absolutely de-emphasize SNFs with higher costs-per-case and poor quality performance, which we are already seeing,” she says.

The move by CMS will require a sea change for providers and hospitals in the ways they approach knee and hip replacement surgery, says Mike Lessila, director of business development with Vestica Healthcare, a medical benefits administration company based in Menomonee Falls, Wisconsin.

Rather than having a “blank check for services,” as they do now, their reimbursement will be based on a fixed amount of money, he says. Under the proposed rules, this means that the hospital systems will be taking a financial risk for these common procedures and will be guaranteeing the outcome of the surgery.

Bundled payments introduce several complexities to care that hospital systems must deal with, Lessila says. One is that the hospital system must think through its care coordination for these procedures, or the likelihood of failure is high. This will require additional resources to ensure that the patients’ experiences are good and that they follow all of the recommended steps to ensure a successful episode. The bundling also will motivate providers and facilities performing the services to streamline and improve communication.

Source: HealthLeaders Media; July 14, 2015.

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