Making a bundle: Unpacking the reality of commercial bundled payments

A year ago, a large number of medical practices wondered what commercial bundled payments would look like, with some rough assumptions about how bundlers and conveners would negotiate with various specialties for prices on procedures and services for a specific patient case.

As it turns out, the reality of how commercial bundled payments have rolled out in the past year doesn’t match those expectations, according to Penny Noyes, CHC, president, Health Business Navigators. Working with other providers in a given market to assemble a bundled payment program while taking on risk has proven to be a tall task for some groups.

“It’s a very hard thing for providers to go out and negotiate with other providers in their market, present it to a payer, take all the risk, figure out all the other things that need to go into [a payment program],” Noyes said, especially when other providers might operate under a different tax ID.

Providers also need to understand that bundling is not just about coding, such as when a certain CPT code has overlapping RVUs for separate services. Bundled payment programs come down to a high-cost diagnosis and all the related procedures that go with it, Noyes explained. A case or target rate for the entire episode of care for that diagnosis during a defined period of time must be agreed upon.

Episode definitions

• Episode target: Based on historical claims for the market or for the specific accountable specialist, minus the payer’s desired discount (Outliers, both high and low, are likely dropped from the calculation.)
• Episode cost: Based on actual cases for members in the program (less same outlier formula used when setting the episode target)
• Episode period: Time frame defined by X days before procedure to Y days after procedure (For example, colonoscopy period may be three days prior to procedure and 10 days after.)

 
Establishing that target time period of services can be onerous. For example, one payer that Noyes worked with defined a 14-day bundle period for a colonoscopy, extending from before the actual procedure and many days thereafter. “You have to say to yourself, is that adequate? Is that an appropriate time period,” Noyes cautioned, when looking at entering into a bundled payment program.

Providers also should not be afraid to challenge assumptions about those time periods established by payers, which often rely on claims data from third-party health analytics firms. “You should feel comfortable … to challenge [that data] or the payer if you think something just feels a little bit off when they’re presenting” time periods for bundled plans, Noyes said.

Being a bundler/convener versus an accountable specialist

Providers in the role of bundler or convener of a bundled payment program should understand the scope of that role, in which services from other providers are combined prospectively.

In one model, the bundler/convener has multiple providers with different tax IDs packaging various elements of the episode of care to negotiate a packaged price. That model is very complicated due to the need for coordinating numerous providers, Noyes cautioned. “It’s going to take a while for most people to get that kind of program together.”

A simpler approach is taking on the role of an accountable specialist — or, as one payer calls it, a principal accountable provider (PAP) — who submits professional services claims and gets paid a fee-for-service (FFS) contracted amount for only accountable specialist services rendered with no convener or pre-packaged arrangement. “The accountable specialist doesn’t have to negotiate anything with those other providers,” Noyes added.

In this model, episode period, cost and target are established with the payer, and the provider generally is not privy to contract rates for other services (facility, lab, anesthesia, etc.) in advance. Providers generally share in savings if they are under an episode target and meet quality metrics, though it’s not guaranteed that they share in risk by paying money back if they are over the episode target.

Noyes says she expects growth in the accountable specialist model with commercial payers in 2020. Some payers likely will reach out to specialists with solid quality metrics and consistent costs to continue managing their caseloads at those levels, offering savings if they improve performance or outperform the market.

What is the role of a bundler/convener?

• Provides/contracts/credentials/manages the spectrum of services needed in the episode
• Negotiates/determines cost of all services by all providers
• Coordinates claims submission and compliance of all providers
• Prepares for risk of claim expenses beyond the negotiated bundled rate
• Determines eligible patients (underwriting)
• Negotiates with the payer or third-party administrator
• Communicates to all parties involved in the bundle.

Getting paid

Almost every bundled payment plan in the commercial market Noyes has seen has retrospective payment: “You do the procedure and … you get paid your FFS fairly immediately, like you do your regular contract rates,” but reconciliation of target performance for the bundle is usually done within a year or so after the period is over, she said.

Very little exists in terms of prospective payments, though Noyes mentioned that some commercial payers offer a quarterly utilization report to give the providers a sense of their performance. However, reconciliation still doesn’t occur until much later. Noyes urged providers to make sure they negotiate utilization reports and reconciliation in the program to ensure data is available to correct performance before the end of the year.

Managing costs, setting targets

The bundler/convener model has some risk as it relates to costs, Noyes explained, since the payer will be counting everything that happens to that patient during the episode window. For a patient with a procedure that has an exceptionally long window — such as a joint replacement, which might be a 90- to 120-day target period — there could be numerous unrelated issues for which the providers in the bundled arrangement might be held accountable.

“During that time, what if they get pneumonia and they get an inpatient admission for pneumonia?” Noyes posited. “Is that going to count against you? In most of the programs, it would,” unless you negotiate out certain diagnoses that are not related to this in any manner. Without spelling that out, the providers might be held accountable to services unrelated to the intended range of services.

It’s also important for a provider to be practical about historic performance and ability to improve when entering into a bundled payment agreement. “You’ve got to be honest with yourself about whether there’s a lot of room for your patients and the episode of care to cost less,” Noyes said.

In her experience, Noyes has seen outlier claims — at the high and low ends of cost — be excluded from the data used to set a performance target, which can end up resulting in appropriately set goals. In some discussions with payers, she said she has seen the top 5th percentile and the bottom 2.5th percentile for cost taken out to determine a cost goal.

Examples of bundled procedures

Noyes pointed out several common bundled procedures that have plenty of market benchmarking data on episode periods and cost for each to establish bundled payment rates with commercial payers:

• Hip replacement and hip revision
• Knee replacement and knee revision
• Lumbar spine fusion
• Endoscopy
• Colonoscopy.

Small steps toward risk

The current market for commercial payer bundled payments largely focuses on payers setting up providers on a form of shared savings, which Noyes sees as a good opportunity for providers who have outstanding performance in quality and cost to ask for a bigger share of those savings.

Realizing a greater share of savings in the immediate future is advantageous, as Noyes foresees less “wiggle room” for bonus payments in the future as the payers move to a shared risk model, in which some providers will need to pay money back if targets are not met at reconciliation time.

Providers in a bundler/convener model should understand that taking risk is part of the arrangement, but that there are underwriting guidelines to follow to help determine the patients who are eligible for a bundled program, Noyes said. Factors such as age, sex, weight, comorbid conditions, patient compliance with treatment and smoker status can limit which patients are eligible, depending on payer plan benefits and legal compliance.

Similarly, it is important to spell out which pharmacy costs might be considered in the bundled payment. If pain medication is regularly required post-procedure, the pharmacy costs for that prescription ought to be included, but non-related pharmacy costs should be negotiated to be excluded from the arrangement.

And risk is not limited to the bundler/convener model, Noyes said. In the model of an accountable specialist with his/her own tax ID, consider the example of an orthopedic surgery specialist: The provider might perform the surgery in his or her own ambulatory surgery center (ASC), which offers control of costs for the surgery. However, they may not control anesthesia, medication and other factors that go with that episode, Noyes warned. The payer also may have confidentiality agreements with a physical therapy (PT) provider, which limits how the provider can determine the low-cost PT provider in the market. This makes checking utilization reports important to deduce where higher costs originate.

Third-party administrators

The role of the bundler/convener involves quite a lot of coordination and preparation for the risk of claim expenses beyond the negotiated bundled rate, all to ensure that the benefit design is sustainable. That role also includes negotiating with payers, who sometimes might be operating as third-party administrators (TPAs).

TPAs often include self-funded plans negotiating on behalf of a large employer in a market, Noyes said, and that many of the big-name payers in certain markets — such as Blue Cross, Aetna, Cigna and others — will have a significant portion of their business tied to self-funded plans in a TPA arrangement.

“They’re negotiating with you for both their fully insured and their self-funded stuff,” Noyes noted. “So, the terms get a little muddled.” Practice leaders should remember that any adversarial relationship the group may have had with a certain payer in the past may need to be set aside to evaluate properly the potential of a bundled plan.

“You get angry at the payers for a lot of the things that they’ve done in the past,” Noyes said. “But if you’re going to embark on this, start thinking a little bit more collaboratively with them.” It can be very challenging to keep everyone involved in the bundle happy, Noyes added, but the rewards may justify that extra effort.

Think like an underwriter

For a convener taking on risk, “you have to think like an underwriter” and understand for whom you are taking risk, Noyes noted. Age, sex, smoker status, weight and whether any comorbid conditions exist are factors that could make patient costs vary in a bundled plan. This becomes especially important for specialty practices to monitor, as they may not have all the records from a patient’s primary care provider (PCP) or other specialists.

Understanding those patients’ benefit plans also can influence how much leakage occurs in an episode of care. Noyes said a patient in a preferred provider organization (PPO) might be more likely to go outside the network of low-cost providers, whereas a patient in an HMO is more constrained: “They’re not supposed to go anyplace except where the provider says that they’re supposed to go,” Noyes said.

Noyes also said that specific cases might warrant considering reinsurance, especially on expensive procedures. “If you’re going to be doing [joint replacements] and you have something that goes out of whack, you might want to buy some reinsurance,” Noyes said, to cover cost overages for a certain diagnosis to avoid it going toward the episode target.

Another option would be to purchase an aggregate stop-loss policy to limit claim coverage to a specific amount “so that it doesn’t put your whole practice out of business because you’ve gone way over the risk target and owe a lot of money.”

Educate patients, push payers

When so much of a bundled arrangement’s success hinges on patient behavior and outcomes, practice leaders should understand what patients know about the arrangement. Noyes recommends the following steps to make sure everyone involved in the bundle understands the arrangement:

• Ask payers if patients know about established bundled plans.
• Be sure patients have an incentive to use cost-effective providers.
• Have a coordinator work with patients and the providers in the plan to establish and manage the process.
• If the arrangement is pre-packaged, establish whether the patient should pay a single “patient responsibility amount” to the bundler/convener at the onset or after the episode.

 
Once a practice has ensured that patients are being managed properly across the episode, it remains important for bundlers/conveners to push payers to reimburse for the work that’s been done before it becomes harder to get more as performance improves year over year.

“If your outcomes are already better than everybody else in the market, make sure you’re asking for a much bigger piece, because in the second year you’re going to have a much smaller window of improvement, and in the third year … you’re going to get to the point of almost perfection, and then there’s no room for any shared savings,” Noyes said.