Industry Insights

Are You Ready for a Standardized World?

September 2016
Author:  David Taylor

David Taylor

Partner

Audit

Health Care

910 E. St. Louis Street, Suite 200
P.O. Box 1190
Springfield, MO 65801-1190 (65806)

Springfield
417.865.8701

With the recent announcement of the second mandatory bundled payment program (Cardiac Rehabilitation Incentive Payment Model), Medicare reinforced its commitment to new models and the bundled approach. While only select geographic areas will be affected, health care organizations should understand these programs and their influence, even if they’re not included in a current mandatory program.

Mandatory bundled payment programs from Medicare include the concept of payment standardization. The concept of standardization isn’t new—what’s new is how it will impact Medicare payments. Payment standardization is the process of equalizing Medicare payments across providers. It can be applied to different care settings, including hospitals, skilled nursing facilities, home health and physician services, etc. In short, the standardization process converts payments to its primary driver:  resource use of health care services.

Important payment standardization and bundled payment model elements include:

  • Exclusion of add-on payments, such as Medicare disproportionate share payments, medical education (indirect and graduate) and additional payments to sole community hospitals and Medicare dependent hospitals
  • Preservation of differences in the care setting
  • Geographic (wage index) factors and outlier amounts
  • Developing target prices from standardized amounts that organizations will be measured against

Add-on or special program reimbursement often distorts the perception of Medicare’s true episode-related spending. A hospital that receives 20 percent of total Medicare reimbursement from special programs may struggle in recalibrating to a standardized, fixed target price with a bundled payment model. Understanding what portion of reimbursement comes from special programs versus base payments is essential to assessing the revenue at risk and potential effect.

The standardization process and bundled payment model will highlight geographic areas and organizations that overuse services for similar cases. Medicare revenues will be linked to regional providers’ performance. Providers with delivery systems that focus on outcomes while understanding the service delivery cost will be favored. Those with a lower cost of care also have more flexibility to withstand lower payments if utilization drops.

All providers should consider these questions:

  • How do I compare to nearby competitors or regional averages in a standardized world? Is my Medicare utilization higher or lower for similar episodes?
  • How does my cost per care compare to nearby competitors or regional averages? How can it be reduced if faced with lower utilization?
  • Have payments from special programs benefited my organization or competition?
  • What are my margins on Medicare patients? What’s the effect as Medicare becomes a larger payor?
  • How much of the care continuum do I control?
  • If I operate a portion of the care continuum, how do my post-acute providers compare to those outside the organization?

BKD’s Big Data & Analytics and advance payment model teams can help health care organizations answer these questions and navigate the shift to risk-based payment systems. By leveraging Medicare claims data, understanding Medicare profitability and knowing where your organization fits in your market’s care continuum, your organization can better prepare for upcoming, undetermined Medicare changes.

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