E3 – The Episode Payment Model and Its Potential Impacts

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In the third episode in our bundled payment series, Avalere's Mary Ann Clark discusses how the potential updates may impact device manufacturers.
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This interview was originally published as a podcast. The audio is no longer available, but you can read the transcript below. For updates on our newly released content, visit our Insight Subscription page.


Mary Ann: On July 25, CMS issued a new proposed rule that includes several changes and updates to existing bundled payment programs—or Episode Payment Models (EPMs) as they are now called—including the addition of surgical hip and femur fracture treatments (SHFFT) to the current CJR program; and, the addition of cardiovascular EPMs. Overall, these new changes are expected to save $170M in Medicare spending over the 5-year implementation period, which begins next year. Because much the new SHFFT model mimics the current CJR model, I will focus today’s discussion on the new cardiovascular models.

So let’s get down to it.

Beginning on July 1, 2017, CMS will begin to test a model for paying hospitals a set 90-day episode payment amount or target price for beneficiaries admitted to hospitals for medically treated AMI, AMI treated with a PCI, and CABG. These include DRGs 280 through 282, 246 through 251 with a diagnosis of AMI, and DRGs 231 through 236. The challenges for your hospital customers will likely be quite different from those encountered under the CJR model. While most CJR episodes are elective in nature, require substantial use of post-acute care providers, and have relatively rare readmissions, these particular cardiovascular episodes occur typically as the result of an acute event, with significant contributions of chronic conditions that result in both planned and unplanned care throughout the episode. The majority of post-discharge spending for these cases is centered around readmissions, with relatively little spending on post-acute care providers. Additionally, for procedure-based cardiovascular interventions (that is, AMI with PCI and CABG), the vast majority of episode spending is for the initial hospitalization rather than post-discharge spending (60–70% versus 35% in medically managed cases).

Although all providers will continue to be paid on a fee-for-service basis throughout the performance years, hospitals will be financially responsible for managing all Medicare 90-day episode spending to a target price for the particular DRG stratification. For example, the average historical spending for a 90-day AMI episode (with or without PCI) is around $24,000—which includes the initial hospitalization and all follow-up care after discharge from the hospital and within 90 days. If a hospital actually spends $30,000 throughout the year to manage these patients, then the hospital would be above the target price and may be responsible for repaying Medicare for part of the difference.

But total spending is only one component used to determine payment. To encourage “paying for value” in the new models, CMS will also incorporate a composite quality measure to provide further incentives for performance improvement. For AMI, these measures include 30-day all-cause mortality, excess hospital days, HCAHPS score, and a voluntary hybrid mortality measure. CABG quality measures include similar mortality and HCAHPS measures. A hospital would be classified into one of four quality score categories, which would be used to determine eligibility for reconciliation payment if they are below the target price and the effective discount rate.

Changes in the financial responsibility of the hospital to manage a broader episode of cardiovascular care will result in shifting the hospital’s focus to improve care coordination and prioritize items and services that improve beneficiary outcomes and experience at the lowest cost. For cardiovascular care, they will likely seek processes and tools that can help them reduce readmissions, overall hospital days, and mortality; better manage chronic conditions that may contribute to episode spending; and improve patient satisfaction. Although reducing in hospital supply and device cost may be a quick way for hospitals to reduce their own costs, it will not impact Medicare spending or their target price or payment received. However, manufacturers may want to begin to engage with hospitals proactively to start to dialog about how to best address customer concerns in this new payment environment and to demonstrate how they can be a part of the solution to help them succeed.

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