Pathologists and clinical laboratory managers can expect that CMS will accelerate the shift from fee-for-service reimbursements to bundled payment models

It is still not widely recognized among clinical laboratory managers and pathologists that Medicare program officials are serious about moving forward to replace fee-for-service provider payment with value-based payment methods. In fact, many medical lab professionals may not have heard the news from earlier this year that one-third of Medicare payments are now value-based.

It is important for all clinical lab executives to be aware of the press release issued by the federal Department of Health and Human Services on January 26, 2015. It was the first time that the Medicare program had published goals for moving away from fee-for-service that were tied into specific dates.

Medicare Officials Defined Timetable for Adopting Value-Based Reimbursement

In the press release, HHS defined two goals:

• It described the first goal thusly, “HHS has set a goal of tying 30% of traditional, or fee-for-service, Medicare payments to quality or value through alternative payment models, such as Accountable Care Organizations (ACOs) or bundled payment arrangements by the end of 2016, and tying 50% of payments to these models by the end of 2018.”

• It then described the second goal, stating, “HHS also set a goal of tying 85% of all traditional Medicare payments to quality or value by 2016 and 90% by 2018 through programs such as the Hospital Value Based Purchasing (HVBP) and the Hospital Readmissions Reduction (HRRP) programs. This is the first time in the history of the Medicare program that HHS has set explicit goals for alternative payment models and value-based payments.

At End of 2015, One-Third of Medicare Payments Were Value-Based

Fast forward just 14 months later, when, on March 3, HHS announced that one-third of Medicare payments had been moved to value-based methods by the end of 2015. It further noted that this was ahead of its own timetable as described in the January 2015 press release. (See Dark Daily, “Nearly One-Third of Traditional Medicare Payments Now Based on Value-Based Reimbursement and Alternative Payment Models,” May 13, 2016.)

This is a big story in healthcare. After all, as the Medicare program succeeds in shifting reimbursement away from fee-for-service and into value-based arrangements, private health insurers will follow that same path. That means clinical laboratories and pathology groups must be ready to see a steady decline in the proportion of overall reimbursement that is paid as fee-for-serve, with a corresponding increase in the proportion of their reimbursement that comes from value- based programs, ranging from bundled payments to budgeted and capitated reimbursement (where the provider provided the service is also at risk for utilization).

Healthcare’s Move Away from Fee-for-Service Reimbursement

If you accept our assertion that this switch away from fee-for-service is a big story, then Medicare’s recent launch of a mandatory bundled reimbursement program for joint replacement procedures is powerful evidence of the determination of federal officials to move past fee-for-service payments.

It was April 1, when the Centers for Medicare and Medicaid Services (CMS) required providers in 67 regional markets to accept bundled payments for joint replacement surgery. The program is called Comprehensive Care for Joint Replacement (CJR). Dark Daily wrote about the Medicare joint replacement program earlier this month. (See Dark Daily, “New Medicare Program Bases Reimbursement for Hip and Knee Replacements on Value-Based Criteria, Now in 67 Regional Markets,” June 3, 2016.)

It is an important milestone because joint replacement procedures remain a primary source of revenue to hospitals and health systems. Thus, Medicare officials, by eliminating fee-for-service for these procedures, have gained the full attention of hospital administrators.

CJR Initiative Built on Lessons Learned

Bundled payment sets a single spending target for all applicable healthcare services provided during a clinical episode of care over a specified time period, according to an issue brief prepared by the American Hospital Association (AHA). Medicare’s CJR initiative is the first mandatory bundled payment program and involves 789 hospital participants in certain selected geographic areas.

“Bundled payment has real potential to improve care coordination and quality and reduce costs. Unfortunately, it isn’t quick or easy to implement,” wrote Suzanne Delbanco, PhD (above), Executive Director of the non-profit Catalyst for Payment Reform, in her HealthAffairs blog post. (Photo copyright: HFMA.) 

“Bundled payment has real potential to improve care coordination and quality and reduce costs. Unfortunately, it isn’t quick or easy to implement,” wrote Suzanne Delbanco, PhD (above), Executive Director of the non-profit Catalyst for Payment Reform, in her HealthAffairs blog post. (Photo copyright: HFMA.)

The AHA brief also included a useful history of healthcare bundled payments. Here are the essential milestone initiatives:

• 1983—Inpatient Prospective Payment System (which brought DRGs to hospital inpatient services);

• 1991—Bundled reimbursement for coronary artery bypass graft surgery;

• 2009—Acute Care Episode (ACE) program bundled payments for cardiac and orthopedic surgery;

• 2013—Bundled Payment for Care improvement;

• 2016—Voluntary Oncology Care model;

• 2016—Mandatory CJR model.

Key Attributes of the CJR Bundled Payment Model

Among the principle elements of the CJR initiative described in the AHA brief are the following:

• Episode of Care—Includes all Medicare;

• Fee-for-Service;

Part A and Part B costs of care during the hospital stay, as well as Medicare costs for 90 days post hospital discharge, including all skilled nursing facility care;

• Target Price—CJR target prices will include all hospital costs as well as Medicare costs 90 days post-discharge for Medicare Severity-Diagnosis Related Groups (MS-DGRs) related to hip and knee replacements (469 and 470);

• Payment Updates—CJR will update target prices using the annual Medicare payment system updates, enabling hospitals to know their target prices before the start of each performance period;

• Quality Requirements—CJR will calculate a composite quality score and each hospital must achieve a minimum quality threshold to be eligible for reconciliation payments;

• Reconciliation—The bundled payment will be paid retrospectively through an annual reconciliation process;

• Post-episode Monitoring—CMS will monitor post-episode spending for 30 days to identify any systematic increase in post-episode spending;

• Post-acute Care—Post-acute care is a major component of total per-episode spending, accounting for 37% of spending for joint replacement episodes. Thus, post-discharge care represents the area of most significant opportunity for reducing spending and improving quality.

Evidence Supports Effectiveness of Bundled Payment Models

With the CJR initiative, CMS has signaled its interest in expanding bundled payment through mandated participation. “[W]e expect the CJR model to result in savings to Medicare of $343 million over the five performance years of the model,” CMS officials reported in the final rule published in the Federal Register.

Evidence is growing that bundled payments can align incentives for providers—hospitals, post-acute care providers, physicians, and other practitioners—enabling them to work closely together across all specialties and settings, officials stated on the Innovation Center website. “[B]undled payment, if well-constructed and implemented, typically improves the value of healthcare,” wrote Suzanne Delbanco, PhD, in a 2014 posting on the HealthAffairs blog. Delbanco is Executive Director of the non-profit Catalyst for Payment Reform.

Dark Daily predicts two outcomes of this latest bundled payment initiative that medical laboratory professionals will want to watch. First, although the CJR initiative is scheduled for three months, it will be followed rapidly by a more permanent arrangement for joint replacement procedures that will encompass the entire nation. Secondly, from the experience gleaned on this project, Medicare will accelerate the pace of introducing bundled payments for other high-volume procedures and medical services.

Pamela Scherer McLeod

Related Information:

Medicare’s Bundled Payment Initiatives: Considerations for Providers

Medicare Program; Comprehensive Care for Joint Replacement Payment Model for Acute Care Hospitals Furnishing Lower Extremity Joint Replacement Services, 11/24/2015, Final Rule

CMS Includes Rich History of Healthcare Bundled Payments

The Payment Reform Landscape

CPR for Fee-For-Service

Early Evidence from Medicare’s Bundled Payment Pilots Show Improved Quality at Reduced Cost of Care in Findings with Consequences for Medical Laboratories

Medicare Officials Announce Bundled Reimbursement Initiative and Clinical Pathology Laboratory Tests Are to Be Included

New CMS Pilot Intends to Test Viability of a Universal Bundled-Payment Model for Inpatient Care

New Medicare Program Bases Reimbursement for Hip and Knee Replacements on Value-Based Criteria, Now in 67 Regional Markets