Can hospitals and doctors get together to hammer out one bottom-line, bundled fee to charge employers for certain high-volume surgical procedures?
Can employers persuade their workers to travel a thousand miles or two to receive care in a nationally recognized center of excellence, when those employees’ local hospitals claim they can do just as good a job?
And say, isn’t healthcare supposed to be local?
A high profile agreement signed last December between PepsiCo and Johns Hopkins Medicine, signed two years after an equally heralded agreement between Lowe’s Companies and Cleveland Clinic, has raised these questions and others.
Johns Hopkins and PepsiCo
In December 2011, Johns Hopkins Medicine signed an agreement with PepsiCo to provide PepsiCo employees the option to travel to Johns Hopkins in Baltimore, Md., for cardiac and complex joint replacement surgeries. PepsiCo, which sponsors its own self-funded medical plan, waives deductibles and coinsurance for those employees who elect to have their surgery at Johns Hopkins. The company also covers the travel and lodging expenses to Baltimore for the patient and a companion. The payment methodology for these procedures is an all-inclusive, bundled rate for hospital and physician charges and certain preoperative testing.
“We’re offering their employees some of the best healthcare available, which should mean fewer complications and should result in employees being able to return to work sooner,” Patricia M.C. Brown, president of Johns Hopkins HealthCare LLC, the managed care arm of Johns Hopkins Medicine, said at the time the agreement was signed. “At the same time, we’re offering PepsiCo predictability regarding cost.”
Almost two years earlier – in February 2010 – Cleveland Clinic and Lowe’s signed a similar deal, in which Lowe’s full-time employees and their covered dependents enrolled in the company’s self-funded medical plan could elect to schedule qualifying heart surgery procedures at the Cleveland Clinic in Cleveland, Ohio. Like the Johns Hopkins/PepsiCo program, the Lowe’s plan covers all medical deductibles and coinsurance amounts as well as travel and lodging expenses for the patient and a companion, plus concierge services to make the arrangements.
“We believe that having the correct diagnosis, combined with surgery by the undisputed leaders in this field, will produce the highest-quality outcomes for our employees,” Bob Ihrie, Lowe’s senior vice president of employee rewards and services, said at the time.
More to come
“Large national employers are saying, ‘I have a cost problem and I need to be more creative about solutions and taking on that responsibility directly, on the advice of their payer partners and/or HR consultants,” says Brown.
“I see more of these agreements in the future,” adds Helen Darling, president and CEO of the National Business Group on Health. “The pressures on employers are such and the concerns about controlling cost and improving quality and safety lead them to think in terms of selecting centers of excellence for selected procedures. This isn’t across the board, but it is for conditions and procedures that a hospital is particularly good at or experienced in.” The National Business Group on Health is a non-profit organization that represents large employers’ perspective on national health policy issues.
“All major insurers have various centers-of-excellence programs, which are available to their members,” says Eric Grossman, senior partner at Mercer Health & Benefits LLC and a consultant in the company’s U.S. health and benefits business. “The primary differences with the Lowe’s and PepsiCo model are: very narrow center of excellence (one hospital), travel benefits and services, and the bundled payment methodology.” Mercer works on behalf of large employers interested in centers of excellence programs, says Grossman.
The bundled dilemma
A key component of the Lowe’s and PepsiCo agreements is the bundled fee, that is, one price to the employer for soup to nuts – pre-treatment testing, the procedure itself and necessary followup. It’s a concept that Medicare is pushing, but one that hospital systems and physicians have experienced some difficulty developing.
“One criteria [for bundling] is, ‘Is it easy to identify services that should be in the bundle vs. outside it?’” says Peter Hussey policy researcher at the RAND Corp., a nonprofit research organization. Conditions or procedures that are very discrete, and that have clear beginnings and fairly clear end points – such as many cardiovascular and orthopedic procedures – lend themselves to bundling, he says. What’s more, surgeons and hospitals already receive global payments for cardiovascular and orthopedic procedures, so it’s not much of a stretch to arrive at a bundled fee that encompasses both, he adds.
But bundling can be difficult to pull off from a technical perspective, says Hussey. One challenge for providers is the fact that they still handle plenty of fee-for-service claims. “Not every patient is subject to the bundle; not every condition is bundled; not every payer is [seeking bundled-payment agreements].” Providers may find it difficult to balance two different delivery and payment systems simultaneously.
Another issue is the difficulty of convincing providers that cost-cutting measures will not reduce the quality of medical care. This was a point that RAND made in a study released last year, of which Hussey was lead author. Can hospital administrators and surgeons work together to reduce the cost of some of the implants used in certain procedures? Will physicians be mistrustful that administration is pressuring them to change the implants they use based on cost rather than clinical outcomes?
Proponents of bundling believe that the approach can lead to better, more efficient care, and might help providers receive compensation for services that might not be accounted for in fee-for-service arrangements. For example, the bundled fee might include the cost of a case manager contacting patients following their procedure to ensure that their recovery is proceeding as planned. Not only can this constitute better care, but it can result in savings too, in that the patient may be less likely to be readmitted for the same condition, says Hussey.
Bundled agreements with centers of excellence often yield higher-quality care at either the same or less cost than traditional fee-for-service deals, says Darling. One reason is that better care can lead to fewer complications for the patient. So even if the actual unit cost per procedure is the same as that of a fee-for-service equivalent, there may be less need for rework or readmissions.
Employers are attracted to bundled agreements with centers of excellence for a couple of additional reasons, says Darling. “There’s improved productivity – people are back to work faster,” she says. “And frankly, there’s a goodwill factor for employees and their dependents, who feel that their company cares so much about them that [the company] is willing to spend extra money upfront – by eliminating copayments, deductibles and travel costs – for their care.”
Big demands on IDNs
Many IDNs may experience a learning curve developing and marketing bundled-payment deals, particularly if they’re going to deal directly with large employers. “Very large employers tend to be very sophisticated purchasers, and they expect a level of service that may not be typical,” says Darling. “They feel, ‘If we’re going to be sending you a lot of patients, we expect a lot of services that aren’t routine.’”
IDNs that want to get into this game must develop top-of-the-line customer service, she adds. Successful IDNs usually have a team of people in place to handle the issues that arise with direct-to-employer deals. The good news for IDNs is this: Once they’ve made the initial investment in training, setting up protocols, and developing expertise in contractual and legal issues, they can usually replicate the procedure with multiple big employers, she says.
The success of these programs – both for the hospital system and the employer – lies in correctly pricing the bundled fee. That might not be as big a problem as one might expect.
“We agree [setting up bundled programs] is challenging, but there is very significant activity in this area from all major carriers,” says Grossman. “We did not run into significant barriers with developing the bundled payment approach for the center-of-excellence program.”
Hospital systems can look to their cost accounting systems to guide them when developing a bundled fee, adds Darling. And they can decide how much they want to add for the additional services that centers-of-excellence programs with employers demand. Meanwhile, employers already have a pretty good idea of how much certain procedures cost, including cardiovascular or orthopedic surgeries. They will use that knowledge in their price negotiations.
Being physician-owned, Cleveland Clinic may be ahead of other IDNs insofar as hammering out bundled agreements. But it turns out that Johns Hopkins has a leg up as well.
“We’ve been in the bundled care business 15 years,” says Brown. “It’s not unusual for us to entertain these kinds of contracts. Some of the major national payers – United, Cigna, Aetna – have been interested in bundling certain very high-cost procedures, such as transplant, cardiovascular procedures, bone marrow procedures.” The fact that Johns Hopkins has its own managed care plan – John Hopkins HealthCare – has forced the IDN to develop innovative payment models in conjunction with its physicians. “The unique thing about the PepsiCo agreement is that it is a direct-to-employer deal vs. [an agreement] with a major national health insurer,” she says.
Is healthcare local?
Bundling may be a part of the healthcare landscape for some time to come, as illustrated by the fact that the Centers for Medicare & Medicaid Services announced a voluntary national bundled payment initiative in August 2011. And some observers believe that national centers-of-excellence agreements, which include bundled fees, will also multiply in number. But selecting such centers of excellence will always be a moving target.
“If you go back 20 years, you’ll see a list of procedures, including cardiac surgery, that have become so routine you don’t need a [national] center of excellence,” says Darling. “Once that happens, there’s no reason to spend extra time and money to [have procedures performed] outside the local community. But the trick is knowing when that occurs.”
Is healthcare local? Perhaps not so much as some think. “Many top hospitals get a significant percentage of their surgical patients from outside their immediate service area,” points out Grossman.
“I think the answer is still out there,” says Brown, responding to the question. “The PepsiCo deal got a lot of attention, but the jury is still out on whether or not it will work.” Yes, patients can be assured of receiving care from a high-quality provider, in this case, Johns Hopkins. But will they be willing to get on a plane and travel to Baltimore, when their local hospital is saying it can provide the same service?
“If an employer feels that limiting access, or creating more regional or national access, is a way of reducing cost, they’ll pursue that,” she says. “There’s no doubt that some health systems are really working to differentiate themselves from a value perspective.
“Somebody’s going to do something. Costs are out of control, [desirable] quality is not being achieved. Employers – and they’re the ones writing the checks. – are saying, ‘We’re going to see if we can see steer business to providers where we can get the best value.’
“We’ve only gotten a few referrals since this [agreement with PepsiCo] was signed, which is what we expected initially. It will be interesting to see.” JHC