The Power of Episode Payment Models

April 14, 2017

The Power of Episode Payment Models

by | Apr 14, 2017 | Grow Article |

As anticipated, the Centers for Medicare & Medicaid Services (CMS) has delayed its final ruling until May 20, 2017 on “Advancing Care Coordination through Episode Payment Models and Changes to the Comprehensive Care for Joint Replacement Model.”

It’s also quite possible that this is just the first delay on the ruling, and the program may be pushed into 2018. If that happens, it may compete with the unveiling of the new version of the planned voluntary bundled payment program, and thus may be eliminated. In a time of significant uncertainty about the future of healthcare policy, this delay was not unexpected, but is disappointing nevertheless.

With or without a mandate, episode payment models can be a powerful lever for healthcare organizations to transform care management models in order to achieve improved quality and reduced cost across the continuum. This results in better care for patients, higher levels of engagement among physicians, and more value creation for hospitals and the health system.

Furthermore, a high-performing episode care model can be leveraged to grow market share and unlock new sources of revenue from new payment contracts with payers and employers –including more bundled payment models.  High-performing episode care models can also lead to new physician/specialist recruitment and provide for successful entry into other value-based payment models like accountable care organizations.

Why Episode Payment Models Work

Episode payment models can and do work. They improve overall patient care by requiring that providers caring for the same patient coordinate and communicate with each other as the patient transitions from treatment through recovery. This drives better clinical outcomes, higher patient satisfaction, and lower cost of care. When the fragmentation and silos in healthcare are exposed and the system rises to remedy the broken parts, the patient wins. Isn’t that the true test of a good healthcare system?

At their core, episode payment models are about holding each point of care delivery accountable for the overall treatment and recovery needs of the patient. When episode care models are effectively designed, and providers are motivated to care about their treatment plan and the overall management of the patient through recovery, real value is generated. But, when there is a weak link or “silo” in the continuum, the value equation breaks down. Episode payment models expose weak links that are often masked by traditional fee-for-service models.

A Look at Episodes Across the Country

Four of every ten Medicare patients are discharged to post-acute care, defined by CMS as home health, skilled nursing facilities (SNFs), inpatient rehab, and long-term acute care hospitals. Most Medicare patients are discharged to home health and SNFs. Post-acute care, most notably SNFs, is the largest contributor to the variability in 90-day episode costs and outcomes. This is due, in large part, to a Medicare payment system that rewards SNFs for utilization rather than value.

The Medicare reimbursement system incentivizes SNF providers to keep patients longer and maximize the hours of therapy they are provided in order to get paid the maximum Medicare reimbursement for each patient they treat. While efforts are underway to reinvent post-acute care payment models (similar to the impact DRGs have had on acute hospitals), real change remains years away. Until then, episode payment models are a way to address the disparity in care models, costs, and outcomes that exist across the country.

For example, if you have a joint replacement in Salem, Oregon, the Medicare spend for the 90-day episode is $12,000 less than the cost of a joint replacement in Baltimore, Maryland (cost neutralized for wage adjustments, etc.) Treatment for a hip fracture in Honolulu, Hawaii is 40% cheaper than if the same treatment were to be rendered in Shreveport, Louisiana.

For reference, Navvis has ranked every MSA in the country, by episode, for care cost efficiency and quality

This variability is largely due to a few factors unrelated to clinical requirements, such as the supply of post-acute providers in the market, varied market penetration of value-based payments, and the lack of patient placement protocols and care models. While the CMS episode payment models are not perfect, they do help to ensure these sources of variability are addressed.

It’s the Right Thing to Do – and There is Value In it.

We believe that episode payments are here to stay, regardless of a mandate, due to the multi-dimensional value that they generate. Navvis is staying the course in working with hospitals, physicians, post-acute providers, and payers to advance value-based payment capabilities and performance as a growth and diversification strategy.

Not only are episode payments the right thing to do for patients, they open the door for forward-thinking healthcare organizations to implement a superior care model, and leverage that model to grow, expand their market share, and unlock new sources of value.

For example, providers who master effective episodes of care management can use their care model to increase Medicare profitability, increase inpatient throughput, generate savings through public and commercial bundles and ACOs, and decrease penalties in CMS value-based metrics. Further, a superior episode care model can be used to engage in new payer and employer contracts, recruit new physicians, and attract new patients in this era of healthcare consumerism.

Don’t Wait and See…

What does Navvis advise?  Do not stall and hope bundled payments fizzle away in this current political environment. Embrace episode management as a launching point towards truly transformed healthcare. Continue to invest in the capabilities that are proven to improve your episode management performance, and leverage that performance to win in the marketplace.

Here are a few key ingredients in a winning episode management model:

  • Develop and adopt evidenced-based care models that cross the continuum.
  • Measure the performance of the post-acute providers where you are discharging patients, and hold these providers accountable to value-based performance metrics that benefit your hospital and your shared patients.
  • Deploy physician incentives that advocate care coordination and working together on behalf of the patient.
  • Begin to automate and build an IT infrastructure that tracks patients dynamically across the entire episode of care so that interventions can be delivered while the patient transitions form treatment through recovery, and not retrospectively.

Hospitals and health systems that continue to invest in strong care management beyond their walls will reap rewards regardless of what happens as the government seeks reform in the regulation of healthcare.