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July 2016 will be remembered as the tipping point for movement towards value-based payments

I think we will all look back at this July 25th announcement as the tipping point in the movement towards value-based payments because of the number of people it impacts on all sides of the care equation.

“No man is an island, entire of itself; every man is a piece of the continent, a part of the main. If a clod be washed away by the sea, Europe is the less, as well as if a promontory were, as well as if a manor of thy friend’s or of thine own were: any man’s death diminishes me, because I am involved in mankind, and therefore never send to know for whom the bell tolls; it tolls for thee.”

–John Donne, Devotions Upon Emergent Occasions.

The other shoe dropped on July 25, 2016. While CMS’s drive to bundled payments and greater financial accountability has been on a slow march for several years, they finally got to the meat of the matter, announcing the first phase of a move to mandatory bundled payments for a variety of cardiovascular procedures.

Previously the mandatory bundled payment program was limited to hip and knee replacements, themselves a huge category. These are among the most frequent orthopedic procedures experienced by Medicare members and are subject to wide differences in pricing for no apparent reason. But targeting cardiovascular procedures for cost-reduction strategies is getting to the heart of the matter, pardon the pun.

More patients experience and die from cardiovascular diseases than any other. They are the biggest contributor to healthcare costs (heart attacks and strokes cause one in three deaths and result in over $300 billion of health care costs each year). And, notably, they are one of the two (the other is orthopedics) biggest contributors to most hospital’s profitability (e.g., invasive cardiologists bring hospitals an average of over $2.1 million/year in revenue, a 4.2x return on cost; angioplasties have the highest contribution margin of most procedures at 62%. Medicare is the largest hospital payer, representing over 40% of payments made to hospitals. Where Medicare goes, Medicaid and commercial insurers often follow. Hospital P&L: prepare to be rocked.

I think we will all look back at this July 25th announcement as the tipping point in the movement towards value-based payments because of the number of people it impacts on all sides of the care equation: patients, providers, payers, device manufacturers, pharmaceutical companies—the whole gamut of stakeholders. Forcing bundled payments on major orthopedic categories was the first ring of the bell. And now the cardiovascular bundles are a fundamental stake through the, ahem, heart of hospital profitability. And oh by the way, CMS added more procedures to the orthopedic bundled payment program so it’s a double whammy.

Under the new cardiovascular program, which is first a pilot but eventually will glide down the runway for full-blown flight, both heart attack interventions and bypass surgery procedures will be subject to mandatory bundled (fixed) payments that include the hospital stay and all costs for 90-days post discharge. This includes the cost of re-admissions, drugs, devices used, and everything else, including cardiac rehabilitation, which is woefully underused.

Despite the fact that such rehab has been demonstrated time and again to improve patient outcome, it is only utilized 15 percent of the time for patients who need it. Hopefully the financial responsibility shifted to providers for the 90-days post discharge will help them increase this number, as it is a lot cheaper to help someone with rehab than to pay for their unnecessary readmission. When the readmission was revenue, well that was a different story, but when readmission becomes a cost borne for 90 days, not just 30, that is a whole different kettle of fish. We may see cardiac rehab rates rise in ways similar to the rising rate of virtual visits and remote telemonitoring, both of which suddenly got popular when the risk moved from payer to provider.

CMS’s goal in doing this is two-fold: make patient experience more consistently positive and reduce costs borne by the government and our society. According to CMS, “more than 200,000 Medicare beneficiaries were hospitalized for heart attack treatment or underwent bypass surgery, costing Medicare over $6 billion in 2014. But the cost of treating patients for bypass surgery, hospitalization, and recovery varied by 50 percent across hospitals, and the share of heart attack patients readmitted to the hospital within 30 days varied by more than 50 percent. And, while harder to quantify, patient experience also varies. In some cases, hospitals, doctors, and rehabilitation facilities work together to support a patient from heart attack or surgery all the way through recovery. But in other cases, coordination breaks down, especially when a patient leaves the hospital.” Here is a fact sheet on the program.

But as the saying goes, one man’s revenue is another man’s cost. CMS expects to save a net $170 million through this program in the first 5 years. If CMS successfully reduces its costs, the hospitals should get less revenue. The only legitimate way to make it up in volume is to get more relevant patients to your hospital and take market share away from others. And that means hospitals must either deliver great marketing that makes them the hospital of choice (uh, yeah well…) or further consolidate to buy market share, which ironically tends to drive up prices. Since prices will be fixed, health systems must, in the end, become more efficient at care delivery and make real the promise to do more outside their walls to keep patients healthy, particularly on a post-acute basis.

Health and Human Services will invite 98 lucky hospitals to participate in the pilot and this will be an offer too mandatory to refuse. Eventually, when the bugs are worked out, the list of hospitals required to live under these new rules will be increased in-keeping with CMS’s goal of using alternate payment models for 50 percent of all Medicare payments by 2018, up from a current rate of 30 percent. Hospital CFOs: start your calculators. Cardiovascular surgeons and cardiologists: start your Xanax prescriptions.

There are financial incentives to be had for doing a good job in this program, but it’s meant to be a less-than-zero sum game. The goal is cost-reduction, so while some hospitals will see bonuses, many will see penalties and many will have trouble implementing this program due to lack of effective planning, technology and financial systems. This creates an opportunity for companies that can help hospitals with products that have clear evidence of cost-reduction through implementation of their programs. Make no mistake, failure to demonstrate economic value of these products and services will mean your company is short-lived so those entrepreneurs who are still out there selling based on promises and not data are going to get their hearts broken.

The products and services hospitals need to make this transition are many, but include:

Clinical analytics married to pre-emptive methods of intervention with patients (in other words, having data that tells you who is likely to have a heart attack so it can be prevented) (e.g., Health Reveal);

Telemonitoring capabilities in all forms to improve pre-admission and post-acute care management and patient engagement (e.g., Health Loop)

Financial systems that help hospitals understand what their service lines really cost (e.g., Aver, Carrum)

Virtual visits/telemedicine programs that enable more care at home and less in the hospital itself (e.g., Teladoc, American Well)

Care coordination and care management programs that are driven by truly personalized plans of engagement, not one-size-fits-all (e.g., Frame Health, Consejo Sano, Accolade)

Products that advance the simplicity and convenience of using cardiac rehab services (e.g., Moving Analytics)

Products that help document proof of clinical and financial efficacy of the various things described above (e.g., Evidation Health)

Supply chain management tools that help hospitals select among and reduce the number and cost of medical devices and pharmaceutical products used in the 90-day bundle period (e.g., Shared Clarity)

Mindfulness programs that help hospital administrators and cardiology providers transition to the new world order (e.g., Headspace)

There are probably other categories I have missed and there are certainly other companies that do many of these things listed above, but any solution needs to be mindful of the unique populations served by various health systems and also be prepared to share some of the financial risk with their clients. Health systems have become very wary of health tech companies that over promise and under-deliver and they are appropriately asking their vendors to hold hands with them and jump into the risk pool.

So to bring John Donne up to date:

No treatment experience is an island, entire of itself; every clinician is a piece of the treatment team, a part of the main. If a patient be treated in a vacuum, the profit is the less, as well as if the patient were, as well as if a relative of thy friend’s or of thine own were: any person’s poor outcome diminishes the whole, because we are all involved in care delivery, and therefore if you’re wondering for whom the bundle tolls; it tolls for thee.

Photo: Bigstock Photo

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