2016 Review and 2017 Preview

The Year in Bundled Payment – Top 2016 Events While the activity and buzz in the bundled payment world continues to grow, 2016 was what we consider an “in-between year” in the market. In 2015 we saw the vast majority of the Bundled Payment for Care Improvement providers go live. And in 2017 we expect CMS to launch the Advanced BPCI program, as well as to see significant growth in the commercial market for bundled payments.

Despite 2016 being marked between two years of significant progress in bundled payment market, a number of key events, industry trends and new value-based payment models make this “in-between” year worth recounting.

To recap bundled payments for 2016, we’ve compiled a list of key milestones; a preview of 2017 will follow this article.

  1. President Trump. Our list begins like every list of big events in 2016 with the election of Donald Trump as our 45th president. In the short term, we see a pause in CMMI value-based activity as the new administration gets settled. However, our longer-term view is that the Trump/Price era will drive significant growth in bundled payments in both the commercial and governmental payer markets.
  2. The Initiation of the Oncology Care Model. On July 1st CMS launched the Oncology Care Model (OCM). At the time, OCM was below the radar because it began as an “upside-only” initiative, but OCM represented the most significant growth in bundled payment participation in 2016 with 196 cancer care providers and 17 health plans participating. OCM participants have quickly adopted the changes required to succeed within the program as it covers as many as 50% of the patients in an oncology practice, and it is one of the first models that qualifies as a specialist driven Alternative Payment Model (APM) within MACRA. https://innovation.cms.gov/initiatives/Oncology-Care/
  3. The Comprehensive Care for Joint Replacement (CJR) Program Fell Flat. The bundled payment community was initially very excited about the CJR program when it was announced in 2015, but few participating hospitals have embraced the initiative. CJR is the first mandatory program and it requires more than 750 hospitals in 67 markets to participate in a bundled payment initiative for joint replacement patients. From what we’ve seen in the market, most hospitals, with a few exceptions, have done little to change and improve their processes for joint replacement. This is true for several reasons: there is no downside risk in year one of the program, there remains resentment over the mandate, there is limited gainsharing opportunity for surgeons, and now many are anticipating that the program may be changed or dropped by Rep. Tom Price and the incoming team at CMS, among others. https://innovation.cms.gov/initiatives/cjr
  4. Bundled Payment for Care Improvement (BPCI) Reconciliations. Most of the 1,350 providers in the BPCI program reconciled for the first time in early 2016. While the data has not been released by CMS, our informal market survey indicates that most hospitals in the program have earned savings, as have skilled nursing facilities (SNFs) with sizable programs. In our experience, some hospital systems are earning hundreds of thousands of dollars per quarter. Most participating home health agencies and SNFs with sub-scale programs have struggled. The Physician Group Practice (PGP) market has been mixed. Many orthopedic groups have earned significant savings, but hospitalist programs have been hampered by major patient attribution issues, causing CMS to forgive downside for PGP participants for most of 2015 and 2016. These problems have cast doubt on the hospitalist-driven bundled payment model going forward, creating the expectation that the Advanced BPCI model will be more oriented toward traditional specialists. In the third quarter of 2016, CMS and Lewin released their Year 2 BPCI Evaluation and Monitoring Report, but the findings are limited due to a small set of participants in the program in 2014 as most providers didn’t go live until 2015. https://innovation.cms.gov/Files/reports/bpci-models2-4-yr2evalrpt.pdf
  5. General Electric (GE) Bundled Payment Activity. In 2016, GE emerged as a major player in the commercial self-insured bundled payment market. Currently, they have developed maternity and orthopedic bundles in Cincinnati and Boston, and have made inquiries about developing cancer bundles in partnership with high-quality, innovative oncology providers. GE appears to be following in the footsteps of CMS and helping to serve as a catalyst for creating momentum in the commercial bundled payment market. https://www.bostonglobe.com/business/2016/12/19/cuts-unusual-deal-with-new-england-baptist/FqKBq03AB4UuQWQqEzvbgI/story.html
  6. PwC Strategy & Bundled Payment Survey. In their annual bundled payment survey, PwC found that the general public doesn’t find bundled care programs hard to understand once explained, and 80% of consumers favored the bundled model over fee-for-service. Despite this consumer demand, only 31% of hospitals and 20% of employers have adopted the model. We believe this indicates there is significant pent-up demand for growth in the bundled payment market. http://www.strategyand.pwc.com/media/file/Annual-Bundles-Survey-2015-2016-Results.pdf
  7. Episode Payment Model (EPM) Final Rule. Just before the end of 2016, CMS published the final rule for the EPM program, which is essentially a mandatory hospital bundled payment program for AMI and CABG patients, as well as an expansion of the CJR program. There was some uncertainty about whether the Obama CMS team would move ahead with the EPM program given Rep. Price’s stated opposition to these mandatory programs. By moving ahead with EPM, while abandoning changes to Part B drug pricing, it seems clear that the current CMS team believes strongly in the performance and potential of bundled payment programs.
  8. Wait and See Approach in the Private Equity Market. In 2015, numerous bundled payment companies, including Archway Health, received investments from a variety of industry sources including Bain Capital, Cardinal Health, and Coverys. In 2016, the private equity community took a wait and see approach. This phenomenon, driven be several factors, is the result of no new open window periods in the BPCI program, limited downside risk and no convener role in the CJR, EPM and OCM programs, and lack of visibility on BPCI performance due to the PGP attribution issues described above. In addition, each of the major bundled payment players has taken different approaches to growth and success in the market. PE players appear to be watching this play out a bit before placing their bets. We expect winners and losers to emerge in 2017, which should start to open up the investment market.

For being an “in-between year,” there are a number of activities that influenced the bundled payment market in 2016. We welcome your input and feedback, and encourage you to read our predictions for 2017.


Bundled Payments in 2017 – What to Expect

If 2016 was a year of progress in the bundled payment market, 2017 is anticipated to be a year of growth. With more pressure to reduce costs and more opportunity to advance value-based payment with bundled contracts, we expect 2017 to be a big year for bundled payments.

Here are a few of our predictions for the bundled payment market in the year ahead:

  1. Trump/Price Help Drive Bundled Payment Growth. While there is a great deal of uncertainty surrounding the goals and priorities of the Trump administration, it is clear that government spending and regulation will be reduced in favor of more market-based solutions. In addition, there will be increased pressure for payers to lower health insurance premium growth and for providers to lower costs. These pressures will push commercial payers and self-insured employers to build on the success Medicare has had with bundled payment initiatives. We also expect Medicare to significantly expand their voluntary bundled payment programs. Medicaid bundled payment programs will also start to grow as CMS moves toward block grants, which will increase state flexibility while also creating more pressure to reduce costs.
  2. Advanced Bundled Payment for Care Improvement (BPCI) Program Will Greatly Impact Growth of Bundled Payments. Earlier this year CMS announced that they will be rolling out the Advanced BPCI program, a voluntary bundled payment initiative that will build on the current BPCI demonstration. Our expectation is that CMS will announce the Advanced BPCI program in the first half of 2017 with an anticipated start date in early 2018. Importantly, a major goal of the Advanced BPCI program will be to create physician-driven two-sided risk structures that qualify as Advanced Alternative Payment Models (APMs) within the MACRA legislation. Essentially, an Advanced APM is either an ACO for primary care physicians or a bundled payment model for specialists. This will be a huge deal in the bundled payment market, as it will create new opportunities for orthopedic surgeons, oncologists, cardiologists, urologists, gastroenterologists, and others to gain greater autonomy over their care process, improve quality, reduce costs, and earn new revenue through participating in bundled payment programs. With the addition of the Advanced BPCI program, bundled payments are going to grow.
  3. The Comprehensive for Care Improvement (CJR) and Episode Payment Model (EPM) Programs Shift from Mandatory to Voluntary. Representative Tom Price has been very vocal in his opposition to the mandatory aspects of the CJR and EPM programs. While there is a chance that as head of HHS Secretary Price will eliminate these programs, we expect them to continue as voluntary initiatives. By keeping these programs in place, CMS can utilize CJR and EPM as Advanced APMs within MACRA, as well as enable participating hospitals to build on the process improvements and infrastructure investments they have already made.
  4. Growth Will Accelerate in Commercial Bundled Payment Programs – The Buy Side. In the second half of 2016 bundled payment activity among commercial health plans and self-insured employers picked up considerably. Key events included United Healthcare announcing the national expansion of their joint replacement program, GE expanding their joint and maternity programs, and a number of plans exploring partnerships to develop and manage their bundled payment initiatives. In 2017, we expect this activity to accelerate considerably with more plans and employers developing bundle contracts, building provider networks and launching programs.  
  5. Growth Will Accelerate in Commercial Bundled Payment Programs – The Supply Side. As interest and momentum build in commercial bundled payment programs, we anticipate specialists will respond by developing value-oriented specialty networks that can manage within a bundled payment contract. Unlike current, scale-driven health systems, these new networks will consist of high-quality specialists who can that deliver high-quality outcomes for a guaranteed price. These new networks will be unique in that high-volume, independent groups will have the potential to outperform large systems, and they will be able to sell their services to all types of buyers, including health plans, employers, ACOs, and unions, among others, in targeted bundled payment contracts.
  6. BPCI Convener Contracts Are Expiring and New Opportunities Will Emerge. The BPCI program was initially supposed to be a three-year initiative, starting in late 2013 and ending in 2016. It has now been extended through Q3 of 2018, but many of the early contracts providers signed with their conveners had a three-year term. As a result, many of the early BPCI providers may have the option to either switch conveners or become their own BPCI convener starting this year. We would not be surprised to see some of the larger Model 2 hospital systems, orthopedic groups, and Model 3 SNF networks evaluate their convener options and opportunities in 2017.

While many areas of healthcare remain uncertain, we‘re confident that bundled payments will only continue to grow in the coming year.

If you have questions on any upcoming bundled payment initiatives or industry trends, please contact us at info@archwayha.com