Bundled Payment: The Next Step in Improving Quality and Reducing Cost

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Bundled Payment:

The Next Step in Improving Quality

and Reducing Cost

Rita E. Numerof, Ph.D. President

Numerof & Associates, Inc.

®

Overview

The U.S. healthcare industry is currently undergoing what will ultimately be a radical transformation, driven by unsustainable cost increases, increased regulation, and shifting power relationships among payers, providers, physicians, and patients. While virtually all stakeholders agree with the overall objective of healthcare reform -- achieving better health outcomes at lower cost -- there are many different views on how best to achieve it.

Bundled pricing is an innovation being implemented by market leaders that promises to address this dilemma. Deceptively simple sounding, this radically different approach to pricing and risk brings its own unique challenges. Organizations considering a bundled pricing approach will need to understand the requirements for successful implementation. As important, they'll need to start planning now to avoid the "stealth" downside risk of bundled

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Copyright 2011 Numerof & Associates, Inc., St. Louis, MO

NAI

Numerof & Associates, Inc.

Roadmap for Today’s Discussion

Context for Bundled Payment: An Industry in Transition Requirements for Success

1) Defining the Bundle

2) Developing Predictive Care Paths

3) Managing Variability in Cost and Quality

4) Defining Economic and Clinical Value

5) Collaborating with Payers Common Challenges/Pitfalls

Introduction to NAI

NAI is a strategy consulting firm with over 25 years experience

serving Fortune 500 companies, with a focus on industries in transition

Our work across the industry with healthcare delivery, payers,

and manufacturers is focused on redesigning and implementing new business models that sustain profitable growth under changing market conditions.

We have made the evolving requirements of “better care at lower

cost” a core part of our healthcare consulting practice.

NAI has been a pioneer in helping clients incorporate economic

and clinical value (ECV) as the basis for competitive differentiation and growth.

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Roadmap for Today’s Discussion

Context for Bundled Payment: An Industry in Transition

Characteristics of Transition

Regulatory Shifts Changing Market Expectations Technological Change Changes in the Competitive Landscape

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Characteristics of Transition

(cont.)

Times of transition are extraordinarily difficult

→

requires challenging fundamental business assumptions

→

associated with enormous resistance

Changing the business model in flight

... Building the new and protecting the old

Most organizations focus on incremental product/service improvement within the current paradigm...

There are 3 parts to Healthcare Reform:

Insurance Reform (access) Delivery Reform

Payment Reform

Healthcare Reform in the U.S.

√

Objective: Better health outcomes at lower cost What this means depends on the viewer ... it will require a fundamentally different way of

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Healthcare is

BIG

BusinessD.

•Increased Cost

•Increased Utilization

•Questionable Value

Pharma _DeviceMed Diagnostics Other

Manuf’s Clinical Societies Consumers Community Healthcare Delivery Government Policy Payers Employers

Large & Small

Practitioners Academic Medical Centers Government Regulatory Agencies CME Providers

. . . and everyone is to blame!

Industry Drivers of Bundled Pricing

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Industry Drivers of Bundled Pricing

Spiraling Healthcare Cost Inflation

Consumer/Employer Pushback on Rising Insurance Premiums

Industry Drivers of Bundled Pricing

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Industry Drivers of Bundled Pricing

Lagging Quality Indicators

Increasing Demand for Transparency and the Role of Social Media

Bottom Line: Better Quality at Lower Cost

Roadmap for Today’s Discussion

Requirements for Success 1) Defining the Bundle

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Defining Bundled Pricing

A defined set of services with a specified quality outcome delivered at a fixed price.

Providers Aligned to Manage Cost and Quality =

Standard Set of Services

Fixed Price Metrics/Quality Specific Guarantees

+ +

Requirements for Success

Bundled Pricing

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Requirements for Success -- ECV

Drive to

Commoditization

Requirements for Success -- ECV

How do you create meaningful difference in the services you provide?

Why should anyone come to your facility?

ECV as a source of competitive differentiation

ECV represents a core competency that needs to be embedded throughout the business!

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Requirements for Success -- Payer Collaboration

Developing the infrastructure first Defining the risk, ECV proposition

Managing a strategic relationship to demonstrate value Moving from CPT codes to real value

Roadmap for Today’s Discussion

Requirements for Success

1) Defining the Bundle

5) Collaborating with Payers Common Challenges/Pitfalls

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Common Challenges and Pitfalls

1) Underestimating organizational resistance

2) Gaining consensus on predictive care paths

3) Managing comorbid conditions

4) Expanding the boundaries of the bundled price episode beyond acute care

5) Modeling costs, revenues, and margins based on a bundled price offering

6) Creating a conceptual framework for the ECV case that differentiates your offering from the one down the street (or across the country)

Solutions come from seeing opportunity . . .

what’s not there. . .

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Numerof & Associates, Inc.

HTTP://WWW.NAI-CONSULTING.COM (314) 997-1587