At The Intersection of New Bundled Payment Programs and New Discharge Rules: Private Equity Opportunities

Recently, CMS has promulgated new bundled payment rules for Comprehensive Joint Replacement(CJR) that require the mandatory participation of approximately 800 hospitals across the US. This bundle includes not only the inpatient DRG care, but also 90 days of post-discharge care. Contemporaneously, CMS has initiated rulemaking which totally revamps the discharge planning process for hospitals by requiring a) a multi-disciplinary discharge plan within 24 hours of admission; b) both patient and physician input as to preferences and quality indicators of post-acute care options; and  c) community support resource availability. The goal of the new discharge rules is to revolutionize a now disjointed discharge process that leaves both patients and clinicians uninformed and uncoordinated at a very sensitive point in care transition that dramatically impacts the likelihood of possible readmission or costly complications. The new discharge rules seek to create more quality transparency that will result in lower costs and better outcomes through a process of joint patient/clinician engagement.

The intersection of the new discharge rules with the CJR is vital to hospitals since they will bear the risk of the repayments to CMS even though they are not directly providing the post-discharge care—hence their need to focus on proper and effective discharge protocols as mandated by the new discharge rules. These twin forces of bundled payments and rigorous discharge processing  will present challenges for hospitals  in the following ways:

1. Already strained hospital budgets will be further stretched by the need to hire additional personnel to develop, train and implement the new discharge rules;
2. The ability to identify and screen post-acute players that qualify for the various program waivers (the CJR model waives the required 3-day hospital before a SNF admission if the CJR patient is admitted to a SNF that has a 3 Star Compare rating) even in cases where uniform quality indicators may be lacking (e.g., IRFs) without violating patient choice and that now incentivize the least expensive quality and effective location for post-acute care;
3. The need to track cost data over an episode of post-discharge care as compared to a moving benchmark target will require unique data analytics capabilities in both gainsharing creation and care redesign cost savings that many hospitals may find lacking or inadequate; and
4. The need to proactively plan for discharge earlier in the inpatient episode and coordinate the discharge via EMR and other interoperable platforms will stretch the IT and infrastructure budgets of many hospitals.

However, where challenges exist, opportunities may also arise. Firms that can provide solutions on an outsourced and cost effective basis to the above needs will be well positioned to transform care episodes that reflect possibilities for poor outcomes and costly complications to ones that will allow for cost reduction over time. For example, aggregating existing cost data from unbundled sources to a rolled up bundle amount requires focused data efforts. Those efforts allow providers to logically allocate upside and downside but also will allow providers to identify the most likely sources of cost savings. Working with providers that provide quality care (as measured objectively) will be a sine qua non of successful bundled partnerships among providers. How to collect, maintain and calibrate that data to ensure development of a quality network of post-acute providers with aligned incentives will drive the future generation of bundled payment programs. Hospitals which can master that data will be well positioned to success in the alternative payment model world that CMS has warned is coming.

Private equity companies historically have been able to develop “tool” model business outsourcing portfolio firms in health care in many areas without being a direct provider or supplier themselves (e.g. RCM, EHR,  practice management, patient engagement software etc.). The new bundled payment programs (which will only increase over time) coupled with the new focus on care transition management as embodied in the proposed discharge rules offer a similar area of opportunity for PE firms to reduce costs in a process that has historic inefficiencies based on siloed payment paradigms.

The new payment  models will drive more collaboration amongst previously disparate players in the health continuum as well as create more openings for investors seeking to facilitate and accelerate better outcomes at lower cost.