1. Bundled Payments: The Impact on IT April, 2014

2. If you remember just one thing….. Your next CFO isn’t coming from the health industry. Your next CFO is coming from industrial USA.

3. The Commoditization of Healthcare Great news –everything’s getting better –and cheaper –and more accessible Bad news –providers are a dime-a-dozen

4. Your New Bag of Tricks → Differentiators in offerings → New reimbursement models → Bundled payments

5. What Are Bundled Payments? Episode - all services provided to a patient related to a specific medical problem in a limited timeframe Bundle – all services provided during an episode for which “you” are financially responsible “Fixed price”

6. What Are Bundled Payments Episodes CABGGall Bladder ColonoscopyJoint Arthroscopy C-SectionJoint Replacement EndoscopyPregnancy/Deliver

7. What Are Bundled Payments Chronic Conditions AsthmaDepression CADDiabetes CHFGERD COPDHypertension

8. The Theory Cost savings by shifting risk Being closer to the care, the provider can drive efficiencies Nothing new here

9. The Reality → This time it’s different → Commoditization makes this possible → That’s what’s new….for healthcare

10. Why Participate? Profitable – if you can figure it out First one to success sets the stage Capture market share Increase market size

11. If I Don’t Participate? Lose patients How many patients do you have to lose to be out of business? 30%, 20%, 10% ?

12. Planning/executing your project Getting started Determining bundles Contracting Workflow Cost management Monitoring performance

13. Getting Started Secure project champion Develop multidisciplinary team –Gain physician “buy-in” early and often Identify key success factors Identify key performance analytics (KPIs) Establish baselines – gather historical data Build cost accounting models for case tracking

14. Determining Bundles You’re building a model(s) Acute vs. chronic situations Limiting exposure while maintaining quality Clinical/finance involvement in design Redeveloping care models

15. Determining Bundles Where to start? –What you’re good at –What you can control –Areas of excellence / best practices –MS-DRG if you’re a hospital –High volume

16. Determining Bundles Questions to answer –What products/services are in/out? –What have we done in the past? –What is redundant/unnecessary ? –Where can we leverage control? –What causes “outliers”?

17. Determining Bundles Many answers (currently) in claims data –The only structured data source we have –Your internal systems (billing) –Business partner (payer) –CMS data Start and end point (warranty) Commercial products can help

18. Determining Bundles Example analysis 1.Extract historical claims related to bundle Requires a claims-based bundle definition 2.Calculate total reimbursement per patient Use target date range window (e.g., 180 days) This will begin to give you an idea of a target reimbursement for the episode.

19. Determining Bundles Example analysis 3.Segregate model claims from potentially avoidable claims (PAC) Model claims are those experienced for the “typical” patient PACs are those that can potentially be eliminated due to issues such as comorbidity or errors

20. Determining Bundles Example analysis 4.Sum/average in ranges of 10% of target If target is $25,000/episode, sort by ranges of $2,500 See example on next slide

21. Determining Bundles Notes: One can see that most patients fall under $30,000. Above $30,000, PACs increase dramatically while patient count drops equally.

22. Determining Bundles Example analysis 5.This gives a general target of current reimbursement for the episode. 6.From here, drill down to determine: What can be eliminated from the model Current costs / how to reduce How to systematically identify the outliers (those episodes above $30K in our example) to exclude in the contract.

23. Determining Bundles Redeveloping care models –Review current models –Specialty clinical protocols –Best practices…for you –Financial ramifications

24. Determining Bundles IT impacts –Identifying data sources –Data aggregation from disparate sources –Defining/acquiring/developing analytical tools –Ongoing analysis to refine bundle definition process

25. Contracting Gainsharing and withhold models Employer-provider contracting bypassing insurance companies Physician directed models – the hospital as a resource Including non-medical services in bundles Billing for bundles in a fee-for-service world Patient/provider contracts

26. Contracting Examples of excluded conditions –BMI > 33, A1C > 6.5, anemia –Significant depression/drug use/abuse Examples of excluded services –Inpatient/outpatient rehab Examples of warrantied services –Readmission related to surgical site issues

27. Contracting IT impacts –Tracking/analyzing historical data –Directing/receiving bills to/from multiple parties –Billing for bundles in a fee-for-service world

28. Workflow Clinical and IT –Operating both FFS and BP treatment models –Operating both FFS and BP billing models –Standards (and lack of) in bundled payments –The effects of bundles on analytics

29. Workflow Treating bundled patients –Different than traditional patients? –Case management –Ongoing tracking of costs (services)

30. Workflow Billing bundled patients –Effects on charge capture –Automation of different billing models “Dummy” 837 “Conventional” invoicing –Effects on payment processing

31. Workflow The effects of bundles on analytics –Example: pro-rating payments Metric: average reimbursement for a service –FFS: 835 ties payment to service –BP: What portion of payment is assigned to a service?

32. Workflow

35. IT impacts –EMR identifying and tracking BP patients –Ongoing feedback on BP case progress Wholesale changes to charge capture? –Billing/invoice processing –Payment processing

36. Cost Management The key to profitability –Cost accounting methods and systems –Issues in tracking costs by case –Standardizing care to leverage purchasing and reducing costs –Expanding the bundle process to FFS –Broadening the scope of services

37. Cost Management Question: –How do we know if we’re making money? Answer: –If revenue exceeds cost.

38. Cost Management What are costs? –The usual suspects (payroll, supplies, …..) –Direct costs (implants) –Indirect costs (administration, regulatory) FFS ties direct costs (implants) thru billing –Sometimes Reality: Healthcare lags industry in cost management

39. Cost Management Cost management/reduction issues –Understanding current costs –Cost reduction: standardizing care –Cost elimination: process change –Expanding the bundle process to FFS Reduces revenue, also! –Broadening the scope of services ↑ costs & ↑ revenue

40. Cost Management Questions –Where can we influence clinical behavior to drive cost (down)? –How can we model volume against profitability?

41. Cost Management Issues –Collecting granular data at the expense of identifying key cost drivers –Support of changing BP models with lessons learned – flexible cost accounting model –Consistency and timeliness

42. Cost Management Keys factors –Strike a balance: translate/crosswalk finance level to/from patient level views –Line managers have info on source systems for data feeds –Charge level costing models: time/activity based, RVU, direct?

43. Cost Management IT impacts –Cost management system implementation –Ancillary support systems (e.g., surgical trays) –System integration

44. Monitoring Performance Continuous improvement –Case tracking/intervention avoids adverse exposure –Quality measures/KPIs –Ongoing analysis/corrective action for outliers –Using results to renegotiate payer contracts –Who owns the results? Actionable but who takes action?

45. Monitoring Performance Questions: –Are we making money? –Where are the “exceptions”/how to avoid? –How can we squeeze/eliminate costs? –What are the opportunities for more revenue? –Are my “customers” happy? –Can we renew our contracts with better terms?

46. Monitoring Performance Examples of Clinical KPIs: –Readmission rates –SCIP scores –Patient otutcomes

47. Monitoring Performance Examples of Financial KPIs: –Average cost/case, margin/case –ROI –Cost reduction metrics –YoY, per case metrics showing change, not snapshots in time

48. Monitoring Performance Examples of Customer KPIs: –Satisfaction index –Outcomes

49. Monitoring Performance IT impacts –Exception reports/alerts in “real time” –Regular/on-demand performance analysis reports –Quality measures: capture, analyze, report

50. Questions? Thank You! Sheldon Hamburger shamburger@thearistonegroup.com (248) 613-7166