Evaluating Payment Formulas

Medicare statute requires notice and comment: Role of Cost Effectiveness Analysis

In a recent court case (Azar vs Allina Health Services) the supreme court ruled that Medicare Statutes require CMS to take questions and comments before implementing any new type of payment calculation.  This has relevance to Medicare’s new BPCI Advanced (Bundling Payment for Care Improvement) model that is voluntarily being implemented by some hospitals and healthcare organizations.

In this model, instead of the traditional fee for service payment, the hospital, physician and all ancillary services are given a single payment that needs to be divided up among the providers. In addition, no further payments are given if the patient has to be readmitted within 90 days.

A few years ago, this model was used for a few orthopedic procedures (knee replacement) with success as cost savings were implemented by decreased utilization of post-operative rehab services.

In BPCI advanced, several medical diagnoses were included. The problem with some these conditions, sepsis being one of them, is that patients cannot be prescreened, and the clinical outcome can vary widely, which highly impacts the cost of the stay to the hospital. Yet the hospital/program must decide in advance if they participate. Therefore, the most critical questions facing hospital CFO’s is how can the hospital/program decide if BPCI will be profitable, or if it will result in the hospital losing hundreds of thousands of dollars?

This is where cost effectiveness analysis (CEA) can be a game changer. Using a decision tree structure, one can set up the different possible clinical outcomes and their associated probabilities and costs to get a realistic assessment of what would really happen over a specific course of time. No other method can give such a real-world analysis. In this way, the hospital/program could make a more accurate decision as to whether or not to participate in BPCI advanced (So far the program is voluntary). This highly effective analysis technique will have great benefit for programs trying to decide if bundling payments are an effective way to go in the present and near future.