What Medicare’s bundled payment mandate means for Nashville market

In February the Centers for Medicare and Medicaid (CMS) announced an accelerated goal to transition health care providers from the traditional fee-for-service reimbursement model to a bundled payment model.

In the traditional fee-for-service model, each provider along the continuum of care receives separate payment for the services it provides to a patient.

In the bundled payment model, however, a lump sum is paid — typically to the hospital — then carved up and distributed to the other providers based on their involvement in the episode of care for a particular patient.

Stated goals were to transition 30 percent of Medicare reimbursements to a bundled payment model by the end of 2016 and up to 50 percent by the end of 2018.

The big question in healthcare circles since the February announcement has been; “Exactly how is the government going to pull this off?”

On July 9, the answer started becoming clear. CMS announced that a forced bundled payment reimbursement model would be tested in 75 markets across the U.S. representing approximately 35 percent of the nation’s population.

The Nashville-Franklin-Murfreesboro market is one of the 75 randomly selected markets where this model will be tested.

The program specifically targets joint replacements for hip and knee. CMS data shows that more than 406,000 of these elective procedures were performed in 2013 at a taxpayer cost of nearly $7 billion. And with a stated goal of 2 percent reduction in annual spending on these procedures for each of the next five years, a potential for nearly $700 million in savings exists should the program be fully implemented across the country.

Based on the same 2013 CMS data made public in June, the Metro Nashville market alone saw 1,832 primary hip and knee replacements in 2013 worth an estimated $19 million in hospital Medicare reimbursement.

Surgeon reimbursement by Medicare for these procedures was extrapolated at approximately $2.5 million for the same time period.

Roughly another $19 million in Medicare reimbursements would have been paid to skilled nursing facilities, therapy providers, durable medical equipment suppliers and home health companies for post-operative care for these same 1,832 procedures.

These conservative values total $40.5 million in Medicare reimbursement alone. Private insurance claims are not included in this data nor is any data for Williamson, Rutherford or any of the remaining 11 counties in the metropolitan statistical area.

CMS expects the 2 percent savings over yearly target amounts to have very little effect on the efficiencies at the hospital level.

“Efficiency” is the word CMS prefers to use in place of “cost savings.”

That means over the next five years, assuming the proposed rule is implemented on the stated timeline, there should be $800,000 in mandated Medicare cost savings required from Nashville providers who are involved in patient care for total hip and knee procedures.

CMS expects a majority of cost savings to occur at the skilled nursing level and other post-acute care providers. These providers typically account for 50 percent of the total Medicare spend per beneficiary.

The major player in skilled nursing in the Midstate market is National HealthHare Corporation (NHC) with at least 11 facilities operating in Nashville and surrounding counties. Louisville, Ky., based Signature operates three locations. The balance of skilled nursing facilities in the area are predominantly independently owned and operated.

Medicare pays up to 21 days of care in a skilled nursing facility following a joint replacement. An orthopedic surgeon whose group has been voluntarily testing bundled payments in Tennessee advised that the average length of stay for patients discharged from the hospital to a skilled nursing from his group had been 20.5 days before utilization of these facilities was addressed.

At a cost of anywhere from $400 to $600 per day, it is easy to see how savings could be achieved by shortening these non-hospital stays or by alternatively transitioning patients to home health care.

Interestingly, there are already a number of locally owned and operated hospitals testing a voluntary bundled payment model outside of the recent CMS proposed mandate.

According to CMS disclosures, HCA’s TriStar division hospitals, Ascension’s St. Thomas hospitals, Vanderbilt University Medical Center and Community Health Systems are voluntarily studying bundled payments.

Community Health Systems is actively testing bundled payments in many of its hospitals.

Additionally, local surgeon groups Premier Orthopaedics and Tennessee Orthopaedic Alliance are listed on the CMS website as actively testing the model.

Whether CMS will execute the proposed new rule on its stated timeline of Jan. 1, 2016 is not yet known as comments on the proposed rule were accepted through early September. CMS is expected to announce its final rule sometime in the fourth quater.

Bill Hancock is Director for Medical Ventures and President of Bill Hancock & Associates. Contact him at bhancock@medicalventures.com