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New Report: Significant Variation in Expected Savings per Hospital in BPCI Advanced

ArborMetrix - May 23, 2019 9:22:00 AM

Findings Have Implications for Current and Prospective BPCI-A Participants

ANN ARBOR, MICH., / MAY 23, 2019 — The Centers for Medicare and Medicaid Services is accepting applications for the next cohort in its Bundled Payments for Care Improvement Advanced Model now through June 24. As prospective and current participants prepare to apply and participate in Model Year 3, they should understand the positive or negative effect BPCI-A target price methodology could have on their program results from day one.

CMS designed the program to encourage broad participation with the intention to reward improvement over time. Although CMS understandably relies on a hospital’s past performance to set target prices, it does not consider how two key factors affect a hospital’s true performance in a given episode: (1) Variability from limited sample sizes and (2) Hospital-specific trends through and beyond the target performance period.

ArborMetrix-BPCIA-EpisodeSelection-Report_Page_1A new report, “A Data-Driven Approach to BPCI Advanced,” by ArborMetrix examines the combined effects of the current BPCI-A Model target price methodology on current participants and explores strategies for episode selection based on challenges and opportunities that target prices present.

Key Findings:

  • It is challenging to set accurate target prices based on a limited or unreliable sample size. Some BPCI-A participants’ target prices were set based on low total case volume, or a small sample size (as few as 41 cases for some). In these instances, the likelihood that the sample represents a hospital’s true efficiency is extremely low. This makes it difficult for CMS to calculate a truly accurate estimate of a hospital’s total cost of care for an episode. See Figure 1.
  • The difference in expected savings varies greatly across participants. Comparing the 10th and 90th percentiles in the Cardiac Valve bundle, hospitals with unfavorable target prices will need to improve at least $1,352 per patient to break even, while hospitals with a favorable target price can expect to save $4,484 per patient before even considering any changes to their current delivery of care. See Table 1 and Figure 2.

Key Implications:

  • By using proven statistical methods to gain a more accurate estimate of their hospital spend on episodes in a given bundle, hospitals and physician groups could realize significant savings in bundles they would have not otherwise considered participating, or avoid bundles where they may be fighting an uphill battle.
  • Adjusting for sample size variability and hospital-specific efficiency trends might represent an opportunity for CMS to set target prices more reflective of true performance at program start. This would more accurately measure true performance improvement and reward participants that can actually reduce expenditures.

“Our methods do two things that help providers make better decisions,” said Douglas Staiger, Ph.D., report author and John Sloan Dickey Third Century Professor in Economics, Dartmouth. “First, to more powerfully forecast and track performance in each bundle, we leverage all available data, including performance in related bundles and up-to-date data from the most recent quarters. Second, our reliability adjustment filters the noise from the data so that providers can more accurately track their current performance and forecast their future performance.”

Using all available data to quantify how a hospital would perform if the case volume were unlimited results in a more accurate estimate of a hospital’s true cost of care for episodes in a given bundle. Then by accounting for a hospital’s natural upward or downward motion in cost of care, a hospital can gain a sense of whether it is facing a headwind or a tailwind when managing episode costs in a given bundle.

“Hospitals need to answer three questions when selecting risk in BPCI-A,” said Chris Birkmeyer, M.S., report author and EVP of Analytic Solutions, ArborMetrix. “One: ‘How good is my target price?’ Two: ‘What has changed [since target prices were set]?’ And three: What is my opportunity to improve?’ Knowing the answers to these questions is the difference between winning and losing in this program.”

For future Model Years, current and prospective BPCI-A participants have an opportunity to realize significant financial savings in the program by taking a data-driven approach to selecting appropriate risk in the program.

Read the full report here >>

BPCI-A Report Facts and Figures

Figure 1. BPCI-A Model Years 1 & 2: Target Price v. Baseline Case Volume - Major Joint Replacement of the Lower Extremity

BPCI-A Target Price Major Joint Replacement of the Lower Extremity

Each blue dot represents a hospital eligible to participate in the bundle. The vertical Y-axis shows the hospital’s CMS target price for the bundle. (Note: Target prices presented are based on “standardized dollars” that have already eliminated variation attributed to contractual reimbursement rates). These begin at $15,000 and range up to $50,000. The horizontal X-axis shows each hospital’s baseline case volume for the bundle. Moving from top to bottom along the Y-axis and to the right along the X-axis, hospitals begin to cluster and form a funnel shape. This shows how as baseline volume increases, it is easier to reliably determine a true episode cost. The spread of low volume hospitals up and down the Y-axis highlights the difficulty in setting target prices based on a small or unreliable sample size.


Figure 2. BPCI-A Model Years 1 and 2: Expected Savings or Loss per Episode - Cardiac Valve

BPCI-A Expected Savings per Episode - Cardiac Valve - Bundle Analtyics

This histogram shows the number of BPCI-A eligible hospitals in each per Episode NPRA bucket. Buckets represent the dollar amount participants in this bucket can expect to gain or lose on each episode. This histogram includes each participant’s Per Episode NPRA for the Cardiac Valve bundle, where we found the greatest difference between per episode NPRA in the 10th and 90th percentiles. Hospitals participating with a favorable price in this bundle could expect to earn $4,484 per episode before even considering any changes to their current delivery of care.

Table 1. BPCI-A Model Years 1 and 2: Potential per Episode Net Payment Reconciliation Amount
ArborMetrix uses all available data to calculate a more accurate true cost of care of each hospital in the U.S. for every BPCI-A bundle in which they are eligible to participate. By comparing this more accurate estimate to the CMS target price for each bundle, we calculate the dollar amount each hospital can expect to gain or lose per patient in every bundle in which they are eligible to participate. In order to demonstrate the range of potential savings, we look at the top and bottom 10th percentile for each bundle. This analysis gives a sense of the financial ramifications of a favorable or unfavorable target price on a per bundle basis.

For example, hospitals in the 10th percentile for the UTI bundle will need to realize at least $1,700 in savings per patient before they could aim to achieve savings on UTI patients through the BPCI-A program. This table highlights the top five bundles with the greatest difference in NPRA between the 10th and 90th percentiles. A complete table with all 29 inpatient bundles is available in the full report here. 

Read the full report here >>

Inpatient Bundle Name

Potential per Episode NPRA - 10th Percentile

Potential per Episode NPRA - 90th Percentile

Difference between 10th and 90th Percentiles

All Inpatient Bundles




Cardiac Valve




Lower Extremity Humerus Procedure, except Hip, Foot, Femur




Disorders of Liver Except Malignancy, Cirrhosis or Alcoholic Hepatitis




Fractures of the Femur and Hip or Pelvis




Major Bowel Procedure




Topics: hospitals and health systems- Bundled payments- value-based payment- provider groups



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