HCFA demo helps doctors and hospitals pool efforts
No longer operating under conflicting incentives
In an effort to pare spending and waste, a new Medicare demonstration project encourages doctors and hospitals to work together to provide acute care services for one bundled or lump sum payment.
The Health Care Financing Administration (HCFA) selected six health care organizations with eight sites in Pennsylvania, New York, and New Jersey to accept one bundled payment for nearly all Medicare hospital admissions.
The northeast region was selected for the demonstration because it shows relatively high medical costs but low Medicare managed care penetration, "and therefore the greatest potential for better coordination of clinical care and program savings," according to HCFA.
Under the plan, a lump sum will be paid to an organization representing both the physicians and hospital, such as a physician-hospital organization (PHO).
"We were looking for hospitals that have given evidence of high quality through [Joint Commission on Accreditation of Healthcare Organizations] surveys. We didn’t want to bring in hospitals that had quality problems," says Mark Wynn, the HCFA project manager who designed and will implement the demonstration. "Secondly we avoided hospitals that were in difficult financial condition. We didn’t want to be saddled with hospitals which were in poor financial condition and desperate to try anything."
Participants say the project will encourage a more efficient use of Medicare resources. "By hospitals and doctors working together under a joint payment arrangement, the two groups no longer operate under conflicting incentives for Medicare funding," says R. Michael Buckley, MD, president of the PHO of Pennsylvania Hospital in Philadelphia, one of the project participants. "Instead, they collaborate for everyone’s benefit."
The other demonstration sites selected for the Medicare Provider Partnership Demonstration are JFK Medical Center in Edison, NJ; St. Peter’s PHO in Albany, NY; Crouse Irving Memorial PHO in Syracuse, NY; The Chester County PHO in West Chester, PA; St. Barnabas Health Care System Provider Partnership in Livingston, NJ; Newark (NJ) Beth Israel Medical Center; and Monmouth (NJ) Medical Center.
For the Chester County PHO, HCFA’s proposal offered the avenue they’d been looking for to create synergy between doctors and the Chester County Hospital, says PHO president Tom Shedlock.
"When we first saw the [HCFA] request for proposals come across our desk, we had been working for a few years to build partnerships with physicians. We’ve done some work in the commercial market. Within the hospital structure, we had taken a solid approach toward making a case management department instead of using utilization review. But the bottom line is that the incentives were still not aligned between the doctors and the hospital. This program really opened up the opportunity to shift those incentives and create some partnerships."
Currently, hospital and physician Medicare payments are separate, with hospitals being reimbursed according to diagnosis-related groups (DRGs) and doctors being paid on a fee-for-service basis. Analyses show wide variations in the combined total services provided to hospitalized patients.
All sites chosen for the demonstration proposed a discount from their historical Medicare reimbursement amounts. That discount is roughly 5%, Shedlock estimates.
Bundled payments will cover all hospital, physician, and other health professionals’ services throughout the episode of care, including services provided within three days prior to admission.
By doing so, "health care consumers will benefit through reduced costs, single billing administration, and simplified access to comprehensive and coordinated quality care," Buckley says.
The payment formula will be based on the DRGs Medicare currently uses to reimburse hospitals for care. The average historical total payment for hospital and physician services per DRG will be calculated for each participating organization.
"As much as possible, we’d like to include all of the DRGs," Wynn says. "Many of the PHOs in the demonstration would like to exclude a few DRGs that are either rarely encountered in the Medicare population, like obstetrics, or relatively high cost or perceived as high risk such as heart transplants or serious trauma." In general, hospitals in the project included in their proposals 95% to 100% of all DRGs.
At the Chester County PHO, roughly 94% of DRGs will be included in the demonstration. Excluded services "were either low volume or [involved] cost circumstances that we were not comfortable trying to manage out of the box," Shedlock says, such as maternal child health diagnosis. For someone eligible for Medicare, such a diagnosis clearly involves other problems, he explains.
His organization hopes to see an increase of up to 3,000 patients annually as a result of participating in the project, Shedlock says. As for the patients, "the biggest change patients will see is an eventual reduction of paperwork." Patients will not receive separate bills from each physician involved in the acute care. "Under this program, we will be responsible to unify all that billing into a single invoice. It will tell the patient this is what we’ve processed and how we’ve processed it,’" Shedlock says. In turn, Medicare will send participating PHOs "one multiple remittance with data and dollars," he adds.
The criteria for success: breaking even and keeping patients satisfied, Shedlock says. "If we can break even on the project and keep patient satisfaction high, we’ll be doing well."
The demonstration projects will get under way during the next several months and will last three years, with a possible extension for up to six years, according to HCFA.
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