10 Success Factors for an Effective Bundled Payments Strategy

3 December, 2015

10 Success Factors for an Effective Bundled Payments Strategy

Earlier this year, Health and Human Services Secretary Sylvia Burwell updated the Centers for Medicare & Medicaid Services’ (“CMS”) timeline for moving fee-for-service to “alternative payment models” – the goal is to have 50 percent of Medicare fee-for-service payments be linked to “alternative payment models" by 2018. For the past 18 months, employers and commercial payers have explored bundled payments, one of the alternative payment methods, with more than 6,000 participants signed on to participate in testing and scaling bundled payments with Medicare in the BPCI program (Centers for Medicare & Medicaid Innovation, 2015). The evaluation of such tests will inform precisely how bundles will roll out nationally.

Conceptually simple with a relatively low entry point, it is no surprise that when considering the alternatives, healthcare organizations and physicians are enthusiastically test-driving bundled payments. Looking to avoid the “head in the sand” or “do nothing” approach but not quite ready for population risk, many healthcare executives view bundled payments as their middle game on the path to fusion reimbursement. Bundles can be a reasonable approach to fending off competitors and new entrants while introducing the organization and market to their new future. With bundles in pediatrics, newborn delivery, outpatient services, chronic disease, and oncology, bundled payments have moved far beyond the version 1.0 elective procedures.

If bundled payments are your preferred strategy, make sure you have a smart approach to execution. Here are the top 10 success factors to the latest in bundled payments:

1. Establish a culture of doing

Innovation is about doing. Healthcare organizations that can adopt a start-up culture will triumph in a time of payment reform and industry transformation. The pace is intense but necessary, and like a muscle that needs developing, your team will adapt. Implementing bundled payments and other alternative payment models is highly doable but does take discipline, and it will surely be disruptive. Smart leaders understand and prepare their team to rise to the challenge with a start-up attitude.

2. Find your pitch perfect

Many healthcare executives remain confused about what exactly “it” is that they are selling to payers when it comes to bundled payments. A provider’s “value” isn’t about jargon, or words at all. Your value, or your “pitch” – the pitch that will close new contracts and secure new partners and new revenue – is often lost to healthcare executives. Merely stating that you will compete on price or demonstrate “fee-for-value” is not different from what your competitors are promising. Take the time, typically two to three work sessions, to figure out your value proposition, and do not assume you know it. What is your story? Before taking another meeting with a payer, go back to the drawing board, and rethink and repackage your pitch. Your pitch or presentation likely involves a new method of delivery in the form of a real patient story where you contrast “what is” versus “what could be” as a result of this new contract or partnership. The message also needs to include a re-defining of partnership that is not about annual rate increases. Take rate increases off the table, and acknowledge that the task at hand is to manage the total cost of care. Newly structured arrangements where the onus is on the providers to ensure that patients do not get what they do not need… now that is a new conversation worth a payer’s time and your time.

3. Think digital market share

Healthcare is mobile. Are you in it? Health information being ubiquitous is closer than you think, thanks to companies such as reCaptcha (the security encryption technology that verifies you are not spam by asking you to enter letters, etc. on a website), that give secure access to health records and physicians online. The health reform play book assumes real-time predictive analytics at a provider level… at your patient’s finger tips. Managing bundled payments requires the ability to predict which patients are most at risk for falling off course, thus enabling early intervention. Bundles also require the ability to dodge avoidable readmissions. Now is the time to rethink how we define market share to include digital market share, which will matter (a lot) over the next five years.

 4. Rethink your capital strategy (hint: radically different)

Organizations should approach developing and implementing new payment models the way a venture capital start-up would. The major constructs of payment reform, whether it be managing episodic risk through bundles or assuming risk for a population, require significant analytic capability that many healthcare organizations today do not possess. Re-envisioning your business model to support total cost of care contracts requires rethinking the capital strategy. Letting go of historical allocation can be a tough cultural pill to swallow, but it is absolutely necessary. Many department directors have grown accustomed to an annual capital budget envelope to manage. Help department directors understand the future; situating the conversation with the context of transparency enables department directors to shift from a place of resistance to staunch support.

5. Open your architecture

The traditional “closed architecture” system is not only bad for patients and their families, it is bad for business. Healthcare and payment reform require providers to open their assets – their brands, their contact list, and their distribution channels – in an effort to monetize big ideas and opportunities. Rethinking traditional organization structures by opening up teams across functions and settings will position healthcare organizations to more quickly respond to the market and scale-up new innovations.

6. Build scale-ups

Many of our best ideas are not scalable, and yet our business plans are often predicated on our ability to scale big ideas. What if you were able to scale even 10 percent more of your organization’s big ideas? Implementing new payment models and getting them to “stick” require a strategic approach to scale. For example, even holding shorter, more efficient meetings, preferably walking or standing, supports this new “scale-up” mentality that will be your competitive advantage and enable you to maximize the full revenue opportunity of new payment innovations.

7. Get over the hiring hurdle

Bundled payments and other disruptive innovations are not for everyone, and healthcare executives may find they are having difficulty finding “good talent.” As important as it is to have innovative thinkers, we also all need masters of execution in the new world of healthcare reform. Much of the work of healthcare reform is counter culture to an organization in the ways described above. In addition to opening up their architecture, smart leaders are taking new approaches to their talent search to ensure the right dose of disruption while ensuring speed to market and ability to stick.

8. Redesign the care model

Bundled payment success is predicated on predictable cost and quality for an episode of care. As new interest in areas such as pediatrics, outpatient, and chemotherapy come into play, providers will need to develop and execute a care model that is right for the population for which they are accepting a bundled price. Standardize your approach to care model development to enable scalability. Common tools and processes, regardless of population, will enable organizations to more quickly scale up bundles.

9. Focus on the end game

Successful bundled payments implementation is the prelude for total cost of care and population health management. On the reimbursement continuum, the methodologies and approaches will support episodic risk are not different from the methodologies and approaches necessary for managing a population. Smart scaling of bundles means keeping an eye on the end game with bundles and ensuring your bundled payment strategy aligns with your population health strategy. Intentional overlap in roles and work in this area will ensure that you are not building bundles in silos, but building bundles within the context of total cost of care management.

10. Keep in mind the fight and the stakes

It bears repeating that in 2014, the price tag for U.S. healthcare came in at a hefty $3.8 trillion dollars – nearly double what other wealthy nations spent during the same time period (Commonwealth Fund, 2015). What is most disappointing about that number is just how little we got for our money. Not only do we still have 41 million uninsured Americans, but also, once again in 2014, the U.S. ranked dead last on infant mortality, dead last on life expectancy, and dead last on efficiency.

The orthodoxies governing healthcare finance are so entrenched that it will take disruptive leaders and disruptive innovations such as bundled payments to focus our transformation efforts on what actually works. Old hierarchies are crumbling not only inside healthcare but across the entire U.S. economy. Healthcare leaders who are willing to think digital market share and reconceive their business model will find the bigger and more exciting world of total cost of care to be a fight worth fighting.