Our Take on BPCI Advanced Target Pricing Methodology

Arguably, the most important aspect of a bundled payment program structure is how the bundle price is decided; prices should be fair to providers and cover all appropriate services for optimal patient care. With the release of BPCI Advanced in January, the Centers for Medicare & Medicaid Services (CMS) provided an updated pricing methodology that we believe drives improved patient care and benefits provider participation more than the original program.

Given the importance of target price to a provider’s success in bundled payments, we have provided our analysis of the new methodology below to help providers further evaluate BPCI Advanced before they finalize their participation decision in August.

Why Update Target Pricing?

In BPCI Advanced, CMS wanted to address many concerns heard from BPCI 1.0 participants who consulted with the agency in the development of the new program. With the new methodology, CMS stated that its goals are to:

  • Encourage both high-cost and low-cost providers to participate
  • Reward participants’ improvement over time
  • Adjust for patient case mix that is not under the provider’s control
  • Allow for regional trends and other relevant provider characteristics
  • Induce Medicare savings while maintaining high-quality care

Key Strengths of the Methodology:

  • Episode-Specific Adjustments will enable better prediction of episode spend.
  • Two-Stage Patient and Peer-Group Risk Adjustments will create fair comparisons between like patients and like providers, providing a higher target price to enable appropriate care to be provided for those serving more severe and vulnerable populations.
  • Use of standardized payments will remove differences in geography and payment policy, allowing for more accurate comparisons across providers.
  • Index Price Trending will remove variation caused by price changes across years, ensuring that factors outside of providers’ control do not impact their target price.  
  • Capping of high-cost episodes to reduce the impact of outlier spend on pricing will protect providers from loss due to catastrophic events.

Four Major Steps of the Methodology:

In determining a provider’s target price, the BPCI Advanced methodology will comprise the following steps in assessing provider data and performance during the 2013 to 2016 baseline period: 

  • Hospital Benchmark Price will be based on a hospital’s historical performance, levels of patient severity, and persistent differences in peer hospitals and trends to the model year. 
  • PGP Hospital-specific Benchmark Price will build upon the Hospital Benchmark Price with adjustments for a PGP’s historical efficiency and case mix relative to the hospital during the baseline period.
  • The Preliminary target price will then incorporate the automatic 3% program discount and convert the standardized dollars from the analysis to real dollars. 
  • The final target price will then adjust for the actual patient case mix for the performance period and convert again to real dollars at reconciliation.

Additional Qualifiers and Timeline:

Below are other key aspects of the pricing methodology and timeline for potential participants to keep in mind:

  • Participants will only receive their Preliminary Target Price during the application process (May 2018). The Final Target Price will only be determined after the performance period is complete to account for case mix changes during implementation.
  • PGPs will receive a separate benchmark price for each hospital that initiates an episode.
  • Acute care hospitals with 40 or fewer episodes during the baseline period (2013-2016) are not eligible to participate in model year 1 and 2.
  • PGPs will not receive preliminary target price for episodes initiated in acute care hospitals with less than 40 episodes in the baseline period.

What We Are Still Waiting on from CMS

To fully evaluate the program, we will continue to look for:

  • Final prediction models and pricing methods. CMS has said that these are still in development.
  • Specific analysis data files. Archway has recommended to CMS that they provide detailed model parameters and standardized payment data files to participants with their raw data for organizations to replicate the pricing and accurately determine their opportunity and areas to improve care.
  • Clarity on incentivizing efficient providers. Archway has asked CMS to provide clarity on how low-cost, high-performing providers will be encouraged to join the program.

Keys to Success

  • Providers need to understand their historical performance, what impacted their price, and the major cost drivers of price relative to their peers to fully evaluate their opportunity in the program.
  • Implementation strategies will need to be provider specific. High-cost providers will benefit from reducing costs through improving quality and care efficiency, while low-cost providers will need to evaluate their pricing advantage, as well as their ability to further improve against feasible benchmarks.
  • Providers will need to initially and continuously evaluate their opportunity during the 5-year performance period (2018-2023), as it will be driven not just by their initial pricing, but also pricing changes over the course of the program and their opportunity to increase savings relative to their peers.
  • With hospital-specific prices for PGPs, new alignments will be forged between PGPs and hospitals, and partnering with the right providers will be critical as it will not be obvious whether historically low- or high-cost hospitals will be better partners until pricing is finalized and providers can fully evaluate.

High-performing, low-cost providers need to quickly decide if they have a pricing advantage due to their high performance as this could create immediate financial opportunity.  Archway is the only organization that has benchmarked performance for all 32 episodes nationwide for physicians, physician groups and hospitals.

As you’ve likely noted, pricing methodology is complex and organizations are going to need a partner with expertise to fully evaluate the impact and opportunity. If you have any questions about these pricing topics or how we can help you evaluate your decision, contact us.