Bundled Pricing at Boston Childrens Hospital George Mc

Bundled Pricing at Boston Children’s Hospital George Mc. Millan Fleming Center for Healthcare Management 2 nd Annual Case Competition

Agenda • • • Competitive Pressures Facing BCH Bundled Pricing and Quality Improvement Pros and Cons of Bundled Pricing Costing for Accurate Bundled Pricing Physician Pay for Performance New Value Proposition Moving Forward

Porter’s 5 Forces and Hospitals New entrants face barriers to entry such as substantial capital expenditures and government regulations. Suppliers include healthcare equipment companies, pharmaceutical companies, and physician organizations. Bargaining Power of Suppliers MODERATE Rivalry among competitors Threat of New Entrants LOW Industry Competitors MODERATE Threat of Substitutes LOW Buyers include government insurance companies, commercial insurance companies, and patients. Bargaining Power of Buyers MODERATE Substitutes include alternative medicine, exercise, and stand-alone urgent care clinics.

Health Care Industry Changes Hospitals are footing the bill for the 2. 3% federal medical device tax. Source: “Device Makers Add Fees to Cover Health Tax, ” Wall Street Journal, January 26, 2013 Bargaining Power of Suppliers HIGH Threat of New Entrants LOW Industry Competitors HIGH Threat of Substitutes LOW Bargaining Power of Buyers HIGH Payers have successfully negotiated discounts of 5 -20% from hospitals. Source: “Health Law Pricing Begins to Take Shape, ” Wall Street Journal, February 28, 2013

New Health Plan Demands • Recent consolidations in health insurance • Health reform will give plans new members Images from http: //www. inquisitr. com/268859/aetna-sued-by-thousands-of-california-doctors-for-coverage-denials/, http: //www. businessreviewusa. com/news_archive/news/health-plans/coventry-health-care-expands-mhp-acquisition, http: //vaccinenewsdaily. com/medical_countermeasures/321410 -wellpoint-urges-flu-vaccinations-for-seniors/, http: //www. edmarc. org/amerigroup-elves-are-busy/

New Patient Demands • The rise of consumer-driven health care Consumer-Driven Health Care Image from http: //www. americanprogress. org/issues/healthcare/news/2008/05/19/4359/myth-vs-fact-consumer-driven-health-plans/

What BCH Must Do to Compete Bundled Pricing of Services Accurate Costing Models Quality Improvement Efforts

Pros and Cons of Bundled Pricing • Shift risk away from health plans to BCH – More attractive for health plans – Greater chance of cost overruns • Reap benefits of streamlining care – No penalty for cutting CPT codes – Less overutilization • Set industry standard early in the game

Accurate Costing → Accurate Pricing Costs Markup Price

Different Costing Schemes Factors RCC RVU TDABC Calculation Mechanism Cost of procedure = RCC rate * procedure charge Cost of Resource = Total Dept. Cost/Total Dept. RVUs x RVUs for event Complex allocation based on Time taken by every resource Arbitrary numbers/assumptions used in calculation RCC rate RVU None (very objective process) Does it take into account the difference in resource utilization patterns for different ? No Yes Ease of implementation Easy Difficult Process Mapping No No Yes

Benefits of TDABC • • Better exclusion of research costs More objective allocation of overhead Treats excess capacity costs as separate Process mapping of treatments

Process Mapping: Key to TDABC Image from http: //www. cavalue. com/webdocs/Kaplan. Porter. Howto. Solve. Cost. Crisisin. HCHBR%202011. pdf

TDABC Example: Plastic/Oral Surgery 350 Cost/Reimbursement in $ 300 250 200 Reimbursement 150 Total RCC Cost Total TDBAC Cost 100 50 0 Plagiocephaly Neoplasm Skin Excision Craniosynostosis Plastic and Oral Surgery Procedures

TDABC Example: Cast Room 1400 Cost/Reimbursement in $ 1200 1000 800 Reimbursement 600 Total RVU/RCC Cost Total TDABC Cost 400 200 0 Long Leg Cast, Gore Petrie Long Leg Cotton Padding -Tex Padding Cast Room Procedures Clubfoot Cast Total

Improving Patient Quality • Effects of process mapping – Exposes inefficiencies – Exposes deviations from clinical guidelines • Alignment of incentives with bundled pricing • Physician buy-in with pay for performance

Physician Pay for Performance • Continue current payment arrangements – Physician services provided by BCH Physicians – Health insurance vs. BCH as payer • Add pay for performance – Up to 5% of base pay Structure Process Outcome

P 4 P Metrics Structure Physicians on call Process Outcome Follow clinical guidelines Reduce length of stay Coordinate care Reduce hospital-acquired infections Reduce readmissions High patient satisfaction scores

BCH’s Value Proposition Quality Payers Patients Value

Next Steps • Process mapping of other departments • Compare TDABC costs with current charges – Use information to develop prices • Meet with BCH Physicians – Get buy-in – Collaborate to develop P 4 P metrics

References Boston Children’s Hospital. (December 2012). “Brand Style Guide. ” Accessed April 1, 2013. http: //www. childrenshospital. org/chnews/bchbrand/images/BCH_Brand. Guidelines_v 1. 0. pdf. Kaplan, RS & ME Porter. (September 2011). “How to Solve the Cost Crisis in Health Care. ” Harvard Business Review. Accessed April 1, 2013. http: //www. cavalue. com/webdocs/Kaplan. Porter. Howto. Solve. Cost. Crisisin. HCHBR%202011. pdf. Melnick, G, VY Wu, & YC Shen. (September 2011). “The Increased Concentration of Health Plan Markets Can Benefit Consumers Through Lower Hospital Prices. ” Health Affairs 9: 1728 -1732. Accessed April 1, 2013. http: //www. rand. org/news/press/2011/09/08/index 1. html. Rosenthal, MB & RA Dudley. (February 21, 2007). “Pay-for-Performance: Will the Latest Payment Trend Improve Care? ” JAMA 297(7): 740 -744. Accessed March 31, 2013. http: //www. commonwealthfund. org/usr_doc/Rosenthal_P 4 P. pdf. Weaver, C. (January 25, 2013). “Device Makers Add Fees to Cover Health Tax. ” Wall Street Journal. Accessed April 2, 2013. http: //online. wsj. com/article/SB 10001424127887323854904578264170779696696. html. Matthews, AW & J Kamp. (February 28, 2013). “Health Law Pricing Begins to Take Shape. ” Wall Street Journal. Accessed April 2, 2013. http: //online. wsj. com/article/SB 10001424127887323699704578328693720458354. html. Graphics: http: //www. cavalue. com/webdocs/Kaplan. Porter. Howto. Solve. Cost. Crisisin. HCHBR%202011. pdf http: //www. americanprogress. org/issues/healthcare/news/2008/05/19/4359/myth-vs-fact-consumer-driven-health-plans/ http: //www. inquisitr. com/268859/aetna-sued-by-thousands-of-california-doctors-for-coverage-denials/ http: //www. businessreviewusa. com/news_archive/news/health-plans/coventry-health-care-expands-mhp-acquisition http: //vaccinenewsdaily. com/medical_countermeasures/321410 -wellpoint-urges-flu-vaccinations-for-seniors/ http: //www. edmarc. org/amerigroup-elves-are-busy/ http: //www. childrenshospital. org/chnews/bchbrand/

Bundled Pricing at Boston Children’s Hospital George Mc. Millan Fleming Center for Healthcare Management 2 nd Annual Case Competition