Once advantage of working with many clients is the diversity of situations that you get to see. So when we got a call that a client wanted to discuss the merits of the various selections of risk tracks under the Medicare BPCI bundled payment initiative, we gathered the team together for a conference call.
In our previous article entitled "A Tale of Two Cities", we discussed a number of considerations in the outlier risk track selections, the primary consideration being the cost reduction strategy that the provider organization was planning to employ. Organizations that plan to reduce Medicare costs through care management activities generally will choose the higher risk track (99%/1% - Risk Track A) to provide the maximum opportunity for savings, while organizations targeting internal cost savings will often choose the lowest risk track (75%/5% - Risk Track C) to obtain maximum insulation from high-cost cases and create a lower target payment amount, which in turn reduces the 2% discount paid to CMS. Until this conversation, we had never encountered a situation where the middle risk track (95%/5% - Risk Track B) would be an appropriate choice.
Our client hospital will be participating in the Major Joint Replacements of the Lower Extremity episode family, and expects to reduce Medicare costs as a result of its care management activities, so our discussion initially focused on the highest risk track. We noted that there were no cases in the hospital’s historical data that exceed the 99th percentile limit, but surprisingly no cases that exceed the 95th percent limit. We had all but concluded that the highest risk track (Risk Track A) was appropriate to give a highest target payment when it was realized that the largest target payment was associated with Risk Track B, and not Risk Track A.
Huh? How could that be? How could removing a larger number of high-cost cases (by moving from a 99% limit to a 95% limit) result in a higher average cost per case? Well, remember that this hospital didn't have any cases that were affected by either of the top two outlier limits, so those limits would have no effect on the average cost. It was the lower outlier limits, which are generally ignored, that caused this phenomenon. Remember that the low outlier limit excludes 1% of cases for Risk Track A, but 5% of cases for Risk Track B. Being an extremely low-cost provider, the hospital had a number of lower-cost cases that were eliminated by the 5% outlier limit but were not excluded by the 1% limit. Removing those low-cost cases drove the average cost, and hence the target price, higher.
A higher target price is almost always desirable when a participant expects to reduce Medicare costs, since it allows for larger amount of savings. Generally the higher target price is associated with the assumption of a larger amount of risk in Risk Track A. However, because of its low episode costs this hospital was able to participate in Risk Track B, assume lower risk and yet obtain a higher target price. (This situation was sufficiently counterintuitive that some of us had to run the actual numbers to confirm, but don't worry, it's right.)
All of this goes to show that it is important to look at every facet of the risk track selection decision before making a final conclusion. There are many different fact patterns and strategies in BPCI, and all must be considered to reach the right choice.