Obama Administration Seeks Overhaul to Medicare Reimbursement for Heart-Attack Treatments

The Obama administration is seeking to restructure how the government pays for heart attack-related medical care in a bid to reduce health spending, officials announced last Monday.

Medicare has long used a “fee-for-service” model where the government has to reimburse healthcare providers for every individual test and procedure they perform on patients.

The system has been criticized for its potential to encourage doctors to perform unnecessary services for the sake of higher Medicare reimbursements and for generally fostering a wasteful and disorganized approach to treatment.

But the Department of Health and Human Services (HHS) proposed new regulations that would overhaul that model for heart attack care by mandating that Medicare make “bundled payments”–which set a fixed overall treatment price for admitting a heart attack patient, treating them with inpatient care, and following up with other services for 90 days after their discharge–to hospitals in 90 metropolitan regions.

There’s both a carrot and a stick element to the bundled payment system, which is part of the medical care reimbursement reforms authorized under the Affordable Care Act. Care providers which manage to treat the entirety of a heart attack episode for less than the target price get to pocket the associated savings; the ones that don’t have to remit the difference back to Medicare.

“By focusing on episodes of care and rewarding successful recoveries, bundled payments encourage hospitals to coordinate care to achieve the best outcomes possible for patients,” said HHS Secretary Sylvia Burwell in a statement.

The theory behind the proposed rules is that such a payment system will encourage the medical sector to become more organized, holistic, and efficient in how it cares for patients.

The Obama administration had previously moved toward such a model for hip and knee replacement procedures, and the new regulations would also set universal target prices for treating certain hip and leg fractures.

It makes sense that lower joint replacements and cardiac attack care are the first two intensive treatments to be targeted for bundled payments. Hip and knee replacement services are the most common inpatient procedures provided under Medicare, and more than 200,000 beneficiaries of the program were hospitalized due to heart attacks or heart surgery in 2014.

The administration aims to shift half of all Medicare reimbursements to alternative models like bundled payments by 2018. If finalized, the new rules are expected to be phased in over the course of five years. (Source: Fortune)

Steve’s Take: After reading the HHS press release for the “new” bundled-payment system for paying healthcare providers for treating heart attack patients, I thought wait a minute, isn’t this system based on the decades-old DRG model for Medicare reimbursement?

For those of you unfamiliar with it, DRG, or diagnostic related grouping, is how Medicare and some health insurance companies categorize hospitalization costs and determine how much to pay for a patient’s hospital stay.

Rather than paying the hospital for what it spent caring for a hospital patient, Medicare pays the hospital a fixed amount based on the patient’s DRG or diagnosis. If the hospital treats the patient while spending less than that DRG payment, it makes a profit. If the hospital spends more than the DRG payment treating the patient, it loses money.

I found it curious that nowhere in the HHS press release, or mainstream media speaking covering the “new” bundled payment model, is there a reference to DRG-based Medicare reimbursement.

I thought it might be instructive to take a brief trip down memory lane to trace the history of the DRG model in assessing the possible impact of the “new” HHS heart-attack reimbursement model at your institution.

I like the analysis of the DRG model in a piece by Elizabeth Davis in Verywell (May 2016) wherein she points out that the DRG system encourages hospitals to become more efficient in treating patients and takes away the incentive for hospitals to over-treat patients.

However, she adds, this is a two-edge sword as hospitals have been eager to discharge inpatients as soon as possible and are sometimes accused of discharging patients back home before they’re healthy enough to go home safely. (The HHS release cites this too.)

The DRG Medicare rules punish a hospital financially if the patient is re-admitted with the same diagnosis when within 30 days of discharge. And to repeat, this is meant to discourage hospitals from discharging patients before they’re healthy enough to go home.

Since the patient can be discharged from the hospital sooner with the services of an inpatient rehab the silly or home-health care, the hospital may be eager to do so because it’s more likely to make a profit from the DRG payment. However, up to this point, Medicare requires the hospital to share part of the DRG payment with the rehab facility or home-health care provider to offset the additional costs associated with those services.

The proposed “new” bundled payment system for heart-attack care sets a fixed overall treatment price for admitting a hard-attack patient, treating them with inpatient care, and following up with other services (e.g., rehab facility), and following up with other services for 90 days after their discharge. It’s about time for this bundling of services, a la DRG.

What’s the industry reaction been to the new rule? Hospital and healthcare financial analysts were cool to the proposed expansion of mandatory payment models to Medicare reimbursement for heart attack.

As pointed out by Chad Mulvany, director of healthcare finance and policy development at HFM, the new bundles raise concerns similar to the first mandatory bundle, including a disparate impact on hospitals with larger shares of low-income patients.

CMS officials noted in the proposed rule that the agency is in the middle of a two-your study of impacts on patients’ socioeconomic status on providers participating in such models, and plans to recommend payment adjustments if needed.

In attempting to decipher the nuances of the “new” bundled payment model for heart attack released by HHS last week, I suggest you just use the original DRG model and as a basis for comparison when conducting a financial forecast of the likely results of the new model at your institution.

It may be obvious to many of you, but I firmly believe DRG is what the “new” system is really based upon; regardless of whether anyone is using the term “DRG.”

(Historical Note: In the early 1970s Yale University developed diagnosis related groups (DRGs) to describe all types of patient care in an acute care hospital. The Yale system encompassed the Medicare population as well as newborn, pediatric, and general adult populations. Over time, DRG technology has evolved to include changes in healthcare delivery and advances in medicine. It also serves hospital needs for data management, reimbursement and comparability, benchmarking, and other types of research. This article provides an overview of the DRG system and its evolution from a grouping system for utilization review purposes to a tool for reimbursement to a tool that also encompassed severity and risk measurement. Source: The American Health Information Management Association.)