Dialogue on hospital survival in the face of cutbacks


Direct Contracting Strategies – Retrospective Bundled Payment Arrangements

Bundled Payment arrangements between providers and self-funded employers are a compelling way to reduce costs and improve outcomes for covered beneficiaries. A Rand Study1 confirmed savings potential from bundled services of 5-23% depending on the population and condition. Savings are generated through lower cost, better outcomes and efficiencies that eliminate waste.

Healthcare providers are looking for ways to reach beyond traditional PPO networks to facilitate these savings to self-funded employers. Why? PPO networks have done a poor job of delivering on their promises of driving volume to providers in exchange for substantial discounts.

Direct-to-employer bundled payment arrangements offer both clinical value and financial savings to employers, new volume to providers, all while avoiding the trips and traps of insurer-driven arrangements.

How it Works

We develop bundled payment arrangements that are simple to design, administer, and evaluate. For each bundle, the self-insured employer and provider agree on the scope of clinical services, a duration of time for the bundle, and a price or budget. When services are delivered, the provider bills the administrator for the employer’s health benefits, and claims are paid in the traditional fee-schedule manner. At certain intervals (quarterly, semi-annually), the claims applicable to each bundle are tabulated, and compared to the budgeted price. If the claims cost is over the target price, then the provider writes the employer a check for the overage. If the claims cost is less than the target price, then the employer writes the provider a check for the difference. The provider remains accountable for cost, quality, patient satisfaction and clinical outcomes. Bundles can be developed for both surgical and chronic illness conditions as outlined below.

Getting Started

  1. Develop a package of defined medical services with specific providers for specific condition or illness with fixed price over a defined period.
  2. Define services that are included in each bundle while considering carve-outs (certain types of cases, certain services), provider-excess insurance coverage for extraordinarily large or complex cases and duration of bundle (30 days, 90 days, all year?)
  3. Document division of financial responsibility between service providers and plan sponsor through a Definition of Financial Responsibility (DOFR) matrix
  4. Set budget amount per case for each bundle type
  5. Patient receives services, providers bill payer, payer adjudicates claims, employer funds claims
  6. Quarterly reconciliation compares amount paid to budget; providers and employer settle-up

Medical Services

The following services will be included based on the specific bundle:

  • Professional specialty physician services
  • Anesthesia
  • Imaging
  • Lab
  • Facility
  • Hospital inpatient, outpatient, ER, rehab
  • Infusion – office, home, hospital outpatient
  • Specialty medications

Bundle Examples

Chronic Disease Bundles – Annual amount divided into 12 monthly payments for:

  • Crohn’s disease – $60,000
  • Ulcerative Colitis – $50,000
  • Chronic Obstructive Pulmonary Disease (COPD) $12,000
  • Osteoporosis $8,000
  • Rheumatoid Arthritis $32,000
  • Multiple Sclerosis $18,000
  • Chronic Kidney Disease $80,000
  • Sleep Apnea $4,000
  • Congestive Heart Failure $12,000

Acute Condition Bundles – 30, 60, or 90-day duration

  • Knee joint replacement surgery $12,000
  • Hip joint replacement surgery $25,000
  • Hernia surgery $6,000
  • Gall Bladder surgery $8,500
  • Spine surgery $42,000
  • Hysterectomy surgery $14,000

Learn More

Contact us to learn how Retrospective Bundled Payment Arrangements can benefit you.



Narrow Network Fads and Folly

mtPayers have figured out that to compete on the exchanges, narrow networks help them win through a combination of lower premiums, and improved patient selection. The theory is that health systems will pay for steerage through additional discounts (where have we heard this before?), and potential members who really want a provider not on the list had something that the payer didn’t want to insure anyway. All this logic may work for payers. It doesn’t work for providers.

Network steerage starts with provider brands, not payers. Your brand matters in an exchange world. Hospitals and doctors are the attraction. Payers are simply vehicles to get there. Some health systems are challenging the value that payers offer in this new world by developing their own insurance products for the exchange. Not a bad strategy if they can execute the insurance fundamentals. That is an outcome in doubt. Lots of dead provider sponsored HMO’s, PHO’s, IPA’s, and other risk-bearing entities offer testament that this is easier to start than to succeed.

Nonetheless, narrow networks are laying before you as an option. Simply adding a new insurance choice into the market doesn’t change patient flow. Redirection of care does. That requires an attractive front-end – a primary care system that is focused on your health system, a system of care to handle non-scheduled patients outside of the hospital ER, and a responsive specialist network that is clinically efficient and responsive to patients. Health systems would obtain better value focusing on building a high functioning network of these component parts, and then put their own brand on it. Branding a high-functioning clinical enterprise through your own insurance product, through joint ventures with payers, or with collaborating re-insurers and fronting carriers are all pathways to the exchange.

But remember, the exchange is a means to an end, not the end itself. Building high functioning clinical networks that can manage population health, share in the value stream they create, and improve the health of the population they serve is the long game. And that’s why we’re still here, right?



New paths for consumers to find you…if you tell them.

Experts in health care. That’s what all our instincts tell us that we want to be. To our patients, to our community, to our regulators, to each other. But when was the last time we were perceived as experts in health care finance and insurance? Last time I checked, we had ceded that territory to insurers. Well, sometimes we get lucky and get a do-over.

The individually-purchased health insurance market is going to likely expand a hundred-fold or more on 10/1/13 as health insurance exchanges for small employers come to life. Whether it is a state-sponsored exchange, or one that is federalized in your state, individuals in your market working in employers with less than 50 employees will have options they do not have today. Industry observers expect upwards of 50% of small employers to simply turn the health insurance purchasing decisions over to individual employees by giving them a voucher to spend on the health insurance exchange for a product that best meets their family’s needs.

This is going to be a big decision, affecting employees, dependents and health care providers. You can expect a full array of products will be offered on the exchange including low-priced narrow network products that may, or may not, include your facility and affiliated medical staff. The product mix and complexity will be staggering for a knowledgeable participant. Think how difficult navigating the process will be for those individual employees who are new to the health insurance purchasing process. Most of these people are unfamiliar with insurance terminology, evaluating benefit designs, network accessibility and quality, and other key product features. Yet, many thousands in your market will be going through this process simultaneously this next October-November.

Who is going to tell your story to all these consumers who may become your patients, if they pick the right plan that puts your medical staff and facility in the right benefit tier in a manner which is understandable to consumers? Do you really believe the insurance industry is going to manage this process in a way that protects your interests? Have they ever done so in the past?

Then why would you rely on some other entity to tell your story than you? Do you have experience with most or all of the insurers in the market? Likely, yes. Are there differences in their levels of administrative and medical management performance? Likely, yes. Can you help educate these new insurance purchasers on the pluses and minuses of particular insurers, types of benefit designs, network options, and what combination provides the best consumer value? Probably not today.

Who would consumers and your future patients call to get this information in your organization today? The billing office? They might know some of it, probably more with some insurers, less with others, and they have all this time to chat with your potential consumers, right? How about your discharge planners – they might have a handle on some of the clinical questions, but would likely be stumped by the business questions, and they don’t have time to talk either. How about your marketing department? Not likely. What about your physician referral service? They might be able to tell the consumer which doctors participate in which plan, but teaching consumers how to differentiate between plans and how to make a great choice for their individual circumstances is not likely their core focus.

This health insurance exchange is going to be your biggest channel for new patients that you have seen in decades. This exchange will help individuals in your neighborhood reverse the incentives they have had to have their care provided elsewhere by a not-so-friendly insurer. Now is your time to begin building this outreach to a whole new set of insurance purchasers. If you wait until next October, your messaging will be buried by insurers competing for these consumers. Your brand is based on trust. Build on it. Make yours a brand based on love, and show it. Help consumers love you by letting them tell you what they need, and give them what they want – confident, competent answers.



Health Systems and Health Reform – Now What?

With the Supreme Court decision behind us, health system leadership has to face new realities and prepare for a future filled with big changes.  Here are five big ones headed your way:

1)    The days of solving hospital operating margins through contract renegotiation are done.

Insurers are moving toward narrow network products to be price competitive and to fit their premiums inside regulatory allowances.  If you offer a payer a take-it-or-leave-it offer, they might just take to leaving you.

2)    There is a new sheriff in town – the consumer. 

Insurance decisions are more likely going to be made by individual family units, not solely employers by 1/1/14. Different customers, different decision processes, different motivations.  What are you going to do to turn your brand into consumer affiliations?

3)    Provider brands are going to matter more than insurance company brands.

Consumers are going to choose insurance plans that have narrow provider network affiliations with their provider(s) of choice.  Why are you relying on insurers to do your marketing?  When was the last time that worked?  Reaching out to patients before they are horizontal in your facility is going to be critical to growing a stable customer base.

4)    If you’re not leading, you’re bleeding.

Tweaking a tired formula of buying physicians, bullying payers, and ignoring regulators won’t work anymore.  Anybody looked at the Boston insurance market lately?  New shared savings models, new care delivery models, and new value equations are going to drive market share, especially if you learn how to communicate that value to your customers – consumers.

 5)    Focusing on IT and other internal process changes are not enough to make you a survivor.

Your investments in new systems, informatics, and lean management techniques are all necessary but will not pay off without simultaneous changes in the way you generate revenue – your link to health consumers.

It’s a wide open market now.    The landscape is changing.  Too many leaders are still on the railing so that when their health care ship starts to sink, they’ll be sucked down with it.  You can do better, be different, and thrive.  Think about people, not just patients – and make them love you.



Q:  How can hospitals survive in the face of substantially increased revenue pressures?

A: Some of them won’t.  But the ones that will survive will be those that reach out now to do three key things:

  1. Aggressively manage their internal costs.
  2. Build strategies to hang on to patient volumes they have now.
  3. Find creative ways to grow new patient volume now and for the future.

Hospitals have become more advanced in how they track, manage, and flex their variable costs as volumes move up and down.  The next level of challenge is to address fixed costs and how such costs can be restructured to become variable, or reduced in other ways.

Many in hospital leadership quietly assume that their Medicare volumes are stable and assured.  The ACO initiative by the feds showed the vulnerability of that assumption because a PCP could switch their allegiance to another ACO very easily and that patient volume could move overnight to a different facility.  Although ACOs remain stuck on the federal launching pad, the vulnerability of existing Medicare patient volume remains.

Growing new patient volume in this new environment means that volume will have to come from some other facility.  Most markets are not growing, and physician supply is not expanding.  Traditional ways of growing volume – buying practices and realigning them with the hospital, planting new physicians in an adjoining community, or tying up  facilities in outlying markets are strategies grounded in yesterday’s premises, not this new reality of scarce capital, declining reimbursement, and an undersupply of physicians.

Repositioning the hospital as a patient advocate between the payer and the patient opens the door to a new set of relationships with patients, both existing and new.

Q: How can hospitals grow new patient volume today?

A: Use health insurance programs in combination with the hospital’s brand equity and trusted community status to establish new mechanisms for community members to affiliate with their hospital of choice.

Q How do hospitals use their brand equity to build volume?

A By developing hospital co-branded insurance products for both the Medicare and Commercial insurance markets, the hospital can use its good name to hold patients to it while they are low utilizers knowing that they will become higher utilizers in time.