Becker's Hospital Review

22 Executive Briefing: Bundled Payments Sponsored by: The Truth Behind Variation in Episode Payments Implications for providers engaging in new payment models V ariation in healthcare spending across the country and, in some cases, within the same markets, has been the sub- ject of debate for decades. Now, as bundled or episodic payments have come under the microscope as a payment model with potential to improve outcomes while reducing costs, payment variation within and across episodes have come into sharper fo- cus. What drives the variation in payments when providers are caring for similar patients? Is it the hospital stay? Post-acute care? Practice patterns? Payer issues? And, more importantly, what does this mean for hospitals and health systems considering assuming risk under bundled payments? This Executive Briefing seeks to answer some of these questions by exploring the regional variations in Medicare payments for 90- day episodes of care (those beginning with a hospitalization that also includes post-acute care). It provides key findings from an analysis conducted by DataGen on four different clinical episodes/ areas of care: acute myocardial infarction, congestive heart failure, pneumonia and major hip and knee joint replacements. These four areas represent some of the highest volumes of inpatient care with- in the Medicare population and are areas where CMS is focusing much of its measurement and quality-related payment policies. Using calendar year 2012 data from the 100-percent Medicare Standard Analytic Files and applying the definitions currently used by the Medicare Bundled Payments for Care Improvement pro- gram, episodes in each of the four clinical areas were reviewed. Under BPCI, episodes are defined by the initial inpatient stay and are assigned to Diagnosis Related Groups. The DataGen study ex- amined the entire family of DRGs for each condition (e.g., for AMI, the episode family includes DRGs 280, 281, and 282). The impacts of Medicare "add-ons" that can cause variation in payments that are not related to the provision of care were removed, including area wage adjustments, payments for medical education and dispropor- tionate share, and capital. This step, which is often missing from other studies of variation, was taken to neutralize or standardize payments to enable fair comparisons between regions. Some of the key findings from DataGen's analysis affirm other published studies on the drivers of payment variation, but other factors also emerged. These findings may have implications for future payment policy, as well as for hospitals, health systems and other providers considering participation in risk-sharing initiatives such as bundled payments. Key findings To explore variation in episode payments, DataGen identified the 10 most and least expensive regions in the country for each episode type. Differences in Medicare payments were quantified between the highest and lowest regions, with the goal being to determine the reasons for those differences. Overall, our analysis revealed: • Variation is not driven by the initial hospital stay. When looking at episodes of care that are defined by a DRG, the inpatient stay is generally not the driver of cost differentials because those payments are standardized. The variation be- tween episode payments, in three of the four clinical areas, was driven primarily by post-acute care choices and utiliza- tion. This finding affirms other studies about variation across Medicare episodes of care. • For CHF, readmissions and skilled nursing care were the main causes of payment variation. An episode of care for patients admitted to the hospital and diagnosed with CHF costs the Medicare program an average of $21,660 in the most expensive 10 regions and about $17,130 in the least expensive 10 regions — a 26 percent difference. • In the 10 lowest-cost regions, almost half of the CHF epi- sodes did not utilize any institutional post-acute care, low- ering the average payment for those episodes to $10,000. Implications and Considerations for Providers Accepting Risk Under Bundled Payments • Providers need to look at and use data in a new way. It is not enough to know and understand one's own perfor- mance information — data is necessary to determine the most clinically and cost-effective care management for the entire episode. • Hospitals should be cautious about engaging in episode pay- ments for diagnoses, such as AMI, which may require a pro- cedure not performed on a full-time basis within the hospital. • It is essential that providers accepting risk through new payment models identify the most clinically appropriate and cost-effective settings for post-acute care.

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