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CMMI Releases Updated Baseline Pricing for Bundled Payments

Saturday, June 14, 2014

David Jackson imageOn May 1, 2014, the Center for Medicare & Medicaid Innovation (CMMI) released Model 2 and Model 3 Mock Reconciliation Results for Q2 2013 to provider organizations going at risk under Phase II of the Bundled Payments for Care Improvement Initiative (BPCI). While the results shared were intended to be informational and to help awardees better understand the reconciliation process, reported changes in baseline target prices raised a few eyebrows across the community of BPCI stakeholders. CMMI notified participants that the 2012 baseline prices were different than previously reported to awardees in August of 2013 due to changes in baseline episodes assigned to participants. Specifically, those participants who had entered into risk agreements (Phase II) have precedence over not risk bearing (Phase I) participants in assignment of episodes. However, there were also notable changes in case mix weights, historic trend factors and risk track thresholds for the 2010 – 2012 baseline period. The combined impact of these changes may significantly impact  2012 baseline target prices. Depending on the direction and magnitude of impact, the financial savings or loss projections for a given participant may change. We recommend all participants revisit those initial projections as part of their work to create a process for ongoing reconciliation.

Many of the BCPI stakeholders were under the impression that target prices reported in August 2013 were in essence “locked in,” so they were surprised to see some target prices driven down, in some cases significantly, for key higher volume DRGs, as we observed for major joint replacement surgeries. Lower than expected target prices ultimately mean lower than expected hard-earned savings a participant may recoup as a result of care redesign and coordination efforts.

According to CMMI representatives, upon advice from the Office of the Actuary at the Centers for Medicare & Medicaid Services (CMS), CMMI switched from deriving national historic episode statistics from a national random sample of 7,000 cases per DRG to the entire national universe of all Original Medicare episodes. The switch in national baseline episodes altered the historic trend factors, case mix weights, and risk track trim points affecting calculated target price, in some cases unfavorably. CMMI has commented that this degree of change was unexpected, but is a one-time occurrence and is not expected to change to this degree in the future. CMMI will continue to utilize the national episode universe baseline. While the shift to a national universe for establishing trend is positive, we believe CMS should consider an additional change to exclude participants from the trend calculation. Furthermore, we believe participants should anticipate substantial variation in quarterly financial results especially for low volume episodes and plan accordingly.

On the plus side, CMMI is making strides in providing greater resources to support participants through more frequent engagement and development of feedback mechanisms to help them understand how they stand in comparison to other episode initiators participating in the BPCI program. CMMI has established dedicated representatives, who will each work with approximately 25 awardees, to schedule regular discussions. They hope to have additional feedback mechanisms available for the first reconciliation time frame. In the meantime, to help drive success, it’s important for all BCPI participants to stay proactively engaged with CMMI and express their concerns and needs around information.

As organizations attempt to predict the financial success and the impact on their relationships with other participating providers through gain sharing or other business arrangements, they must keep track of many moving parts. Target prices will continue to be a moving target and CMMI will only be able to provide the final target prices quarterly, along with each retrospective reconciliation period. So it's important for the BCPI community to establish internal forecasting processes and request additional information, for example, historic quarter to quarter trend factors to better assess potential pricing volatility. CMS has invested heavily in providing data that when used to its full potential, can help facilitate positive transformation.

But it’s imperative for participants to monitor the impact of changes or clarification to BPCI program policies and to provide feedback. We encourage you to share your thoughts with CMMI. The e-mail address for feedback and questions regarding the BPCI program is

David Jackson
Senior Consulting Manager