New Risk in BPCI? Post-Episode Excess Spending Amount

CMS has built a variety of protections for providers as well as CMS into the Bundled Payment for Care Improvement initiative. One of the least publicized and little understood protections for CMS[1] is the “Excess Spending” corridor. The purpose of this corridor is to penalize providers that don’t reduce costs, but merely delay it into the post-episode period. The penalty is designed to minimize the chance that random variation will result in a provider crossing into the excess spending corridor. The methodology that CMS has chosen to use is based on a normal distribution of costs (the standard bell curve) occurring in the post-episode period. The post-episode period is defined as the thirty day period beginning after the episode ends. Historical spending patterns in the post-episode period are being analyzed by CMS in a similar fashion to episode costs. CMS is calculating the mean and standard deviation of these costs across all providers to understand the natural distribution of these costs from the time period before BPCI implementation. CMS has selected a cut-point of expenditures that will only falsely identify .5% of total expenditures for penalization (meaning that a provider that suffers random expenses not driven from clinical delay would still suffer the excess spending penalty). This situation is depicted in Figure A below.

Figure A. Excess Spending Threshold

ESA_Graphic

It is important to note the corridor will be a specific dollar amount and providers will only be at risk for amounts over this cut-point. For example, if the cut point for a Major Joint bundle is $15,000 and the provider incurs $16,000 in expenditures the provider will only be penalized $1,000. In the absence of care delays, this will only occur to about .5% of providers (10-20 providers in the entire initiative).

The excess spending threshold is an important protection to remove the incentive for providers to delay rather than reduce care, and it is NOT a new component of BPCI. It may penalize a tiny amount of providers randomly, but if providers are successful at managing risk there is reason to expect that doing this will benefit the post-episode period and may result in little to no actual penalties being applied.

[1] Note this protection is also designed for Medicare beneficiaries.