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November 01, 2016 Article 2 min read
Bundled payments are here to stay, and providers everywhere along the care continuum must shift their focus to improving length of stay, reducing readmissions, and achieving cost efficiency. Don’t be left behind.

Hospital staff conversingCMS isn’t joking. April 1 marked the official start of Medicare’s Comprehensive Care for Joint Replacement (CJR).

With this mandatory, five-year bundling program, CMS sends the clear message that it’s serious about alternative payments. And it’s far from the only payer testing bundled payments models. Several commercial insurance companies have rolled out their own versions.

Some healthcare providers have negotiated bundled payment programs directly with employers. Johns Hopkins, which first struck an agreement with PepsiCo in 2011 to deliver bundled orthopedic surgeries, today generates almost $46 million in bundled payments on approximately 400 procedures for employers such as Lowe’s, McKesson, and Walmart.

Here’s the bottom line: Even those providers that aren’t active “at risk” participants in bundled payment arrangements likely are in a position to receive referrals from hospitals and health systems that are financially accountable in such programs. As these alternative models gain traction, it will become even more imperative for providers all along the continuum to provide quality outcomes in the most cost-efficient manner.

Beware the narrowed network

Bundled payments are all about controlling utilization. And make no mistake: the providers who don’t work to find that fulcrum point between efficiency and outcome will soon be left behind.

Hospitals and other bundle “initiators” (which include, in some cases, skilled nursing facilities and physician groups) are scrutinizing their post acute partners with an eye toward narrowing those referral networks.

Many SNFs are in a vulnerable position with misaligned incentives. Unlike acute care hospitals, which have had more than two decades to adjust to payment on an episodic basis (i.e., per admission DRG), SNFs still are predominantly paid on a per diem basis. SNFs that make the effort to reduce their lengths of stay will take a short-term hit to the bottom line, while the SNFs that decide to maximize today’s revenue stream will miss out on tomorrow’s referrals.

One strategy that can improve success in a bundled payment program involves planning for discharge as soon as the patient is admitted.

Manage LOS — but don’t overdo it

One strategy that can improve success in a bundled payment program involves planning for discharge as soon as the patient is admitted. Whereas many nursing homes take a day or two to get a patient situated before starting physical and occupational therapy, the most effective facilities now are initiating rehab on the day of admittance—sometimes within the first few hours.

However, overly aggressive providers can get into trouble if they slash lengths of stay only to incur unnecessary costs later. If a patient discharged early from a hospital or skilled nursing facility ends up back in the emergency department or needs more intensive home care, the total costs can quickly add up to more than the CMS target for that bundle.

Watch utilization data

If your organization is going to receive a piece of the bundled payments pie, you must constantly watch utilization and readmission data for your own facility and from your partners on the care continuum.

To start, take a look at publicly available Medicare claims data to understand how your organization currently stacks up. Then work with your internal and external stakeholders to find ways to improve process and clinical pathways to deliver quality outcomes in the most cost-efficient manner.

Remember: Bundled payments are here to stay, and wherever your organization is along the care continuum, your fate is interconnected with that of your partners in managing episodes of care. Providers that don’t shift their focus now to improving length of stay, reducing readmissions, and achieving cost efficiency ultimately will be left behind.