Transforming an Unaffordable Health Care System

If other prices had grown as quickly as health care since 1945, a dozen eggs would cost $55, a gallon of milk would be $48, and a dozen oranges would be $134, said Jan Vest, chief executive officer, Signature Medical Group (SMG), during a session at the World Congress Summit on Bundled Payments. He emphasized that a response to the growing cost of health care is imperative and the use of bundled payments may provide the change the system needs.

“Because of the aging of the baby boomer segment of society, the volume and demand for services is going to just go up geometrically so that if we literally don’t do something to better use our assets, we will bankrupt the Medicare system and we will bankrupt the US Treasury with the current delivery system we have in place,” Vest warned. 

Medicare in Crisis

According to his presentation, Medicare is facing a crisis with the number of elderly and disabled beneficiaries projected to increase substantially over the next several decades, reaching 61.5 million in 2020 and 77.2 million by 2030. 

As hospitals continue to make changes in reimbursement and price compression, providers are going to be forced to learn how to be more efficient.

“Medicare has no choice,” Vest said. “These activities are all based on the demographic changes that are taking place in the face of the fee-for-service model that created this cost-conundrum that we’re in.” 

On April 1, 2016, the Centers for Medicare & Medicaid Services (CMS) Comprehensive Care for Joint Replacement (CJR) rule will go into effect, forcing 67 metropolitan areas to manage mandatory bundled payments for their Medicare populations. According to CMS, more than 400,000 Medicare beneficiaries received hip or knee replacements in 2014, costing more than $7 billion for the hospitalization costs alone. Bundled payments aim to align incentives for providers and puts more emphasis on quality of care rather than quantity. 

The CJR model is projected to save Medicare $153 million, according to a report by Leavitt Partners (Hammer S, Matheson S, Smith N, Ely T, Muhlestein D. The coming of mandatory bundled payments: The Comprehensive Care for Joint Replacement program. Leavitt Partners. January 2016).

 If the CJR model proves successful, this may just be the start of mandatory participation in bundled payments. 

Implementing Bundled Payments 

While CMS hasn’t made bundled payments mandatory just yet, that hasn’t stopped other organizations from recognizing their potential.

SMG, Vest said, began thinking about bundled payments in 2008 when they implanted a Quality Care Program with a Carpenters Union in St. Louis that had 50,000 covered lives. 

“They gave us all of their claims data for orthopedics and we were able to sort out those claims and identify, by episode, total knee replacement, rotator cuff repair, carpal tunnel, etc,” he explained. 

SMG was able to show that managed episodes of care saved money and measured quality. For a total knee replacement procedure, the SMG Quality Care Program had an average savings of $5238 per episode of care compared to non-SMG procedures. 

In 2011, SMG applied for the Bundled Payments for Care Improvement (BPCI) initiative and in 2013 was accepted as a Model 2 participant. According to CMS, “Model 2 involves a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care.” 

When SMG went live with BPCI in 2014, they were managing just 1000 cases. By the end of 2015 that number had grown to around 45,000 cases a year with 58 groups across 26 states. 

Claims data was used to build a home-grown analytics system that provides data and claims information back to the groups, prompting regular meetings with medical leaders to evaluate best practices and identify opportunities for improvement.

Vest also said that SMG implemented “hard stops” prior to surgery—if a patient didn’t meet certain criteria, surgery didn’t happen. Criteria included, but wasn’t limited to, a BMI >40; glucose over 150 while fasting; and, if an active smoker, smoking cessation. 

The main takeaway from the data, Vest said, was that there is a lot of waste in the system and a lot of unnecessary care. “In order to eliminate that you really have to step outside of yourself and and the fee-for-service world and reconfigure your thinking completely to what I call the public health model,” he said. 

Searching for High-Quality, Better-Value Care

Its not just Medicare that needs to change. Commercial insurance is also beginning to feel the pushback on unreasonable costs. 

Vest, who sits on the board of directors for the Midwest Health Initiative in St. Louis, made up of the largest employers in the St. Louis metro area, said employees cannot afford the cost of health care either and large employers are taking aggressive action to change the formula.

According to Vest, the St. Louis Area Business Health Coalition has worked for the last 8 years to develop tools to help the employees of the largest employers select high-quality, better-value, low-cost providers. 

“Those employees get the benefit of granular information on every single doctor, every single health care provider, or hospital, and now its going to be unblinded data,” Vest said. “So its really creating a retail market not only for bundled payments and bundled joints but for all diagnosis and treatment plans, which again is what St. Louis has been seeing, a transition from a seller’s market to a buyer’s market, where the buyer is telling the seller I can’t afford the product that you’re selling me and unless you make these changes we’re going to move our business to somebody else.”—Kelsey Moroz