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Avalere Finds Medicare Bundling Pilots Hold Potential Risks and Rewards for Hospitals and Other Facilities

Contact: Lindsey Spindle, 202.207.1337, lspindle@avalerehealth.net

03.25.10

Washington, DC – Decisions made by Medicare as it implements new “bundled” payment pilot programs for hospital and post-hospital care will significantly influence the level and type of financial risk healthcare facilities bear in the future, says a new self-funded analysis by Avalere Health.  With Medicare currently paying for more than $200 billion of hospital and post-hospital care annually, any changes to reimbursement will have a profound impact on facilities, patients, providers, and others involved in the provision of care for Medicare patients. 

The newly passed health reform bill allows for large-scale Medicare bundling pilots.  Medicare would establish a single, prospective payment rate for all care provided in hospital and post-hospital care settings and would give a single entity – such as a hospital – responsibility for managing a patient through his or her full medical needs, even after the individual is discharged from the facility.  Bundling comes in response to increased concerns about costly unplanned rehospitalizations and a lack of care coordination between facilities that creates inefficiency and reduces quality of care. 

As part of its commitment to understanding the impact of new reform legislation on the healthcare system, Avalere examined one key aspect of bundling that CMS will need to work out:  episode length under a bundled payment system.  An episode length, or number of days that are covered under a payment bundle, is critical:  An episode length that is too short will create incentives to skimp on care, whereas one too long will not achieve maximum efficiency.  The Senate Finance Committee in 2009 proposed a 30-day episode length as a possible timeframe for a bundle to cover. 

Avalere researchers analyzed Medicare claims data for calendar years 2006 and 2007 for Medicare patients hospitalized with major joint replacement and chronic obstructive pulmonary disease (COPD) to see if patients with these conditions would have been treated in hospitals and post-hospital care within 30 days.  These two conditions represent two common Medicare conditions – one acute and one chronic – that are also frequently discharged from a hospital to another setting of care. 

Avalere found that by the 30^th day of care, 91 percent of simple episodes of care and 95 percent of spending were complete.  For this analysis Avalere defined a simple episode as an initial hospitalization, first post-hospital encounter, and any subsequent rehospitalization.  In fact, the mean episode length was 15 days—implying that a 30-day bundle may in fact be too long for a vast majority of patients. 

However, if an episode of care is defined as all hospital and post-hospital care until there is a break in care, a quarter of patients studied were using clinical services well beyond 30 days, with some patient stays lasting years.  In this case, a 30-day payment bundle would not be a sufficient timeframe and creates financial risk for the facility that accepts the bundled payment. 

“Healthcare facilities that care for Medicare patients will accept a range of reimbursement risk under bundled payments, especially for patients with complex medical conditions,” said Alexis Ahlstrom, a director at Avalere Health.  “A strong understanding of these risks by disease and facility will be necessary to ensure that bundling makes sense for all Medicare stakeholders” 

Avalere Health is an advisory services company whose core purpose is to create innovative solutions to complex healthcare problems. Based in Washington DC, the firm delivers research, analysis, insight, and strategy for leaders in healthcare business and policy. Avalere's experts span 125 staff drawn from the federal government (e.g., CMS, OMB, CBO, and the Congress), Fortune 500 healthcare companies, top consultancies, and nonprofits. The firm offers deep substance in areas ranging from healthcare coverage and financing to the changing role of evidence in healthcare decision-making. Its focus on strategy is supported by a rigorous, in-house analytic research group that uses public and private data to generate quantitative insight. Through events, publications, and interactive programs, Avalere also translates real-time healthcare developments into actionable information.

Learn more at www.avalerehealth.net.

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