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The Cost of Learning: Participating in APMs Despite Projected Financial Losses
Jessica Walradt, MS; Hannah Alphs Jackson, MD, MHSA; Brian Walsh, BA; and David Manning, MD

The Cost of Learning: Participating in APMs Despite Projected Financial Losses

Jessica Walradt, MS; Hannah Alphs Jackson, MD, MHSA; Brian Walsh, BA; and David Manning, MD
This article explores Northwestern Medicine’s decision to participate in a Medicare alternative payment model (APM) despite projected losses.
Why Is NM Projected to Lose Money?

How is it that NM could generate average savings of 4% in one program but be projected to lose 9% in another program for the same 90-day MJRLE episode? The answer comes down to the target price methodology. Under the original BPCI program, participants’ target prices were based on their own historical average episode payments. The methodology utilized for BPCI Advanced is much more complex. Instead of focusing on a provider’s own historical experience alone, BPCI Advanced uses national data with regional and provider-specific adjustments. Rather than a simple historical average, BPCI Advanced uses 2 compound log normal models to estimate the impact of various patient- and provider-level factors on episode spending. These models generate parameter estimates, which are ultimately used to calculate the 3 major components of the target price calculation (Table). Together, the components generate a target price that is adjusted for patient case mix and the hospital’s historical efficiency and trended forward based on the episode utilization of like providers in a regional peer comparison group. Although this method is complex, CMMI is to be applauded for developing the most sophisticated and comprehensive risk adjustment methodology featured in a Medicare bundled payment model to date. The modification also appropriately acknowledges the need to move beyond purely historical averages, as over time efficient providers would be disincentivized to participate.

Back to the original question: What about this methodology makes it more difficult for NM to achieve savings in the MJRLE episode? One of the main drivers is the peer adjusted trend (PAT) factor, which is based on the utilization of like providers in a Census region. NM’s MJRLE episode has a PAT factor of less than 0.90, which essentially means that the utilization and corresponding expenditures for the MJRLE episodes initiated by providers in NM’s peer comparison group were lower than what CMMI predicted. In other words, providers in this peer group, like NM, have already become more efficient at delivering care to patients undergoing MJRLE. Additionally, the PAT factor effect is likely to compound over time as providers continue to pursue efficiencies in the MJRLE care pathway, and the resultant target price will continue to decline. Similar arguments can be made for the acute care hospital (ACH) efficiency measure, which is used to calculate the standardized baseline spending (SBS) figure. The SBS will decline as a provider becomes more efficient.

Why NM Is Moving Forward

With all this in mind, readers are probably, rightfully, wondering why NM decided to participate in BPCI Advanced with the MJRLE episode. The answer boils down to a few key points:

NM believes that further opportunity exists to better coordinate care for patients undergoing MJRLE. During BPCI, it made great strides toward optimizing the immediate pre- and postoperative periods for patients undergoing MJRLE. NM engaged physicians through data sharing and education, identified and conducted risk assessments to ascertain the appropriate discharge setting for patients, proactively educated patients on their care pathways to help set informed expectations, and partnered with skilled nursing facilities to coordinate care for patients and set quality goals. Process iteration has revealed what works and where roadblocks lie. NM has yet to meet all of its quality and utilization goals, but it believes that lessons learned during BPCI have enabled it to develop the plans and infrastructure necessary to attain these goals during BPCI Advanced.

NM believes the pursuit of these opportunities will enable us, at a minimum, to break even. Generating buy-in to engage in a new model is difficult if stakeholders believe that the economics of the model are so stacked against them that no matter what they do, losses are a certainty. If NM is able to meet its quality and utilization goals for the MJRLE population, it is projected to eventually break even in the MJRLE episode.

NM has momentum. NM participated in the BPCI original MJRLE episode for 2.5 years, and it took considerable time to build the infrastructure and clinical engagement necessary to generate success. After spending more than 2 years sharing data and results with physicians, more and more NM physicians understand the role of APMs and how they can translate to care improvements for patients. NM does not want to lose this crucial engagement.

New competencies are necessary to succeed in a rapidly shifting reimbursement landscape. Finally, the BPCI Advanced MJRLE episode is not the end game. NM strives to develop the competencies necessary to effectively manage patient care within and beyond its walls for all patient populations. As time goes on, the economic incentives established by payers will increasingly align with this goal. HHS Secretary Alex Azar recently signaled his intent to release additional mandatory bundles1 while CMS Administrator Seema Verma has touted the benefits of Medicare Advantage.2 The lessons that NM learns and the capabilities that it develops from managing the Medicare MJRLE population will be applied to the broader orthopedics population, as well as to patients with other disease groups, in the future.


 
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