Hospitals

State of the Academic 

Clinical Enterprise 

Highlights from AAMC Data Analyses 

Jennifer Faerberg, jfaerberg@aamc.org 

Lori Mihalich-Levin, lmlevin@aamc.org 

Mary Wheatley, mwheatley@aamc.org 

AAMC Health Care Affairs 

November 3, 2012

Agenda 

• Introduction 

• Data Trends for Teaching Hospitals 

• Hospital Margins 

• Resident Caps and Counts 

• Medicare Payment Analyses 

• Readmissions 

• Value-Based Purchasing – Medicare Spend Per 

Beneficiary 

• HOPD E/M Payment 

• Payment Bundling 

• Upcoming Projects 

• Costs of IME 

2012 AAMC Annual Meeting

AAMC Health Care Affairs 

• Supports the clinical mission of academic 

medicine 

• Governmental policy, regulatory, operational, and 

educational activities affecting clinical care and 

graduate medical education (GME) issues 

• AAMC constituency groups 

• Council of Teaching Hospitals and Health Systems 

(COTH) 

• Group on Faculty Practice (GFP) 

• Group on Resident Affairs (GRA) 

• Chief Medical Officers Group (CMOG) 

• Compliance Officers Forum (COF) 


Data Resources 

Financial 

(revenues, 

margins, etc) 

Executive 

Compensation 

Housestaff 

Compensation 

Quality 

Other 

Teaching Hospitals 

Operational Financial (OpFin) 

Surveys: Annual and 

Quarterly 

Mercer-IHN Comp Survey 

Survey of Resident Fellow 

Stipends and Benefits 

Hospital Compare Custom 

Analyses 

Inpatient Impact Analyses 

Faculty Practices 

GFP Annual 

Benchmarking Survey on 

practice expenses 

Group on Faculty Practice 

Executive Compensation 

Survey 

n/a 

n/a 


DataTrends: Hospital Margins 


Medicare Inpatient Margins, by 

Teaching Status, 2000 - 2010 

22.9% 

21.6% 

Major Teaching Other Teaching Non Teaching 

19.0% 

11.1% 

6.0% 

9.0% 

4.3% 

14.2% 12.5% 

10.7% 

5.0% 

1.0% 

-1.5% -2.2% 

-4.2% -3.9% 

-6.5% -6.3% 

9.2% 

7.4% 

5.3% 

-3.9% -4.9% 

-5.8% 

-8.0% 

-8.9% -9.4% 

6.7% 7.5% 

-3.0% 

-2.3% 

-7.1% -6.4% 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

Note: Major teaching hospitals are defined by a ratio of interns and residents to beds of 0.25 or greater, while other teaching hospitals have a ratio of greater 

than 0 and less than 0.25. A margin is calculated as revenue minus costs, divided by revenue. Data are based on Medicare-allowable costs and exclude 

critical access hospitals. Medicare acute inpatient margin includes services covered by the acute care inpatient PPS. 

Source: Data for 1997 to 2004 come from MedPAC June 2006 Data Book. All other years’ data come from the June Data Book released two years later 

(e.g. Data for 2010 come from the MedPAC June 2012 Data Book). 


Hospital Total All-Payer Margins, by 

Teaching Status, 2000 – 2010 

Major Teaching Other Teaching Non Teaching 

4.5% 

4.9% 4.7% 

4.3% 4.3% 4.4% 

2.3% 

1.1% 

1.3% 

5.1% 

4.6% 

4.9% 4.9% 

2.4% 

3.0% 

6.2% 

5.2% 

5.2% 5.3% 

3.5% 

6.8% 

5.9% 

2.9% 

4.5% 5.2% -0.4% 

2.2% 

4.9% 

4.9% 

2.4% 

6.9% 

6.6% 

5.3% 

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

Note: Major teaching hospitals are defined by a ratio of interns and residents to beds of 0.25 or greater, while other teaching hospitals have a ratio of greater 

than 0 and less than 0.25. A margin is calculated as revenue minus costs, divided by revenue. Total margin includes all patient care services funded by all 

payers, plus nonpatient revenue. Analysis excludes critical access hospital. 

Source: MedPAC June 2012 Data Book. 


The Role of COTH Hospitals in 

Graduate Medical Education, 2010 

COTH Hospitals as a Percent of All 

Teaching Hospitals 

Residents & Fellows Educated at 

COTH and Other Teaching Hospitals 

Other 

Teaching 

Hospitals 

73% 

77% 

23% 

Note: Data reflect 4,518 short-term, general, non-federal hospitals. Council of Teaching Hospitals and Health Systems (COTH) hospitals include 275 

integrated and independent members. 

Source: AAMC analysis of FY 2010 American Hospital Association Annual Survey data, COTH membership data as of January 2012. 


COTH Characteristics 

Short-Term, General, Non-Federal 

COTH as % of All Hospitals 

Hospitals 6% 

Admissions 23% 

Births 21% 

Outpatient Visits 24% 

Surgical Operations 22% 

Emergency Visits 17% 

Neonatal ICU 39% 

Pediatric ICU 63% 

Burn Units 78% 

American College of Surgeons (ACS)- 

Verified Level 1 Trauma Centers 

82% 

Note: Data reflect 4,518 short-term, general, non-federal hospitals. Council of Teaching Hospitals and Health Systems (COTH) hospitals include 275 

integrated and independent members. 

Source: AAMC analysis of FY 2010 American Hospital Association Annual Survey data, COTH membership data as of January 2012, ACS website 


COTH Benchmarked Quarterly against Median Teaching Survey Hospital •Twelve Most Results Recent Quarters 2009-2012: 

Total Operating Margin 

14% 

8% 

6.70% 

2% 

4.54% 

3.08% 3.39% 

5.42% 

4.84% 4.54% 4.34% 

5.77% 

4.49% 

4.32% 

4.71% 

-4% 

-10% 

2009 

Q3 

2009 

Q4 

2010 

Q1 

2010 

Q2 

2010 

Q3 

2010 

Q4 

2011 

Q1 

2011 

Q2 

2011 

Q3 

2011 

Q4 

2012 

Q1 

2012 

Q2 

Median Teaching Hospital 75th Percentile Teaching Hospital 25th Percentile Teaching Hospital 

Source: AAMC•COTH Quarterly Survey of Hospital Operations & Financial Performance 

Note: Valid n varies from 138 to 168. Operating Margin = ((Net Patient Service Revenue + Total Other Operating Revenue - Total Operating Expense) / (Net 

Patient Service Revenue + Total Other Operating Revenue)) * 100 


COTH Quarterly Survey Results 2009-2012: 

Total Margin 

14% 

8% 

2% 

7.48% 

5.50% 

5.50% 

3.85% 7.29% 

6.52% 6.58% 7.07% 

2.16% 

5.99% 

7.22% 

5.92% 

-4% 

-10% 

2009 

Q3 

2009 

Q4 

2010 

Q1 

2010 

Q2 

2010 

Q3 

2010 

Q4 

2011 

Q1 

2011 

Q2 

2011 

Q3 

2011 

Q4 

2012 

Q1 

2012 

Q2 

Median Teaching Hospital 75th Percentile Teaching Hospital 25th Percentile Teaching Hospital 

Source: AAMC•COTH Quarterly Survey of Hospital Operations & Financial Performance 

Note: Valid n varies from 138 to 168. Total Margin = ((Net Patient Service Revenue + Total Other Operating Revenue + Total Non-Operating Revenue - Total 

Operating Expense) / (Net Patient Service Revenue + Total Other Operating Revenue + Total Non-Operating Revenue)) * 100 


DataTrends: Resident FTE 

Cap/Counts 


Medicare Resident Limits: 

Mandated by the BBA 1997 

The number of FTE allopathic and osteopathic 

residents 

– Limited to 1996 Medicare cost report count 

– Limits differ for IME and DGME 

– Limit is 130% of 1996 count for rural 

hospitals 

– Very few exceptions 


Hospitals Over the DGME Cap, 2010 

Total Number of Hospitals 

Over the Cap 

Total Number of Resident 

FTEs Over the Cap 

350 (65%) 

Other Teaching 


187 (35%) 

Major 

Teaching 


6,866 (74%) 

Resident FTEs 

2,472 (27%) 

Resident 

FTEs 

Source: Medicare Cost Report, FY2010 (August 2012 Release). If they did not have an FY2010 submitted cost report, we took their FY2009 cost report, if available. 

Note: Hospitals with an FY 2010 are defined as hospitals with fiscal periods beginning between 10/1/2009 and 9/30/2010. Hospitals in this analysis only include PPS teaching 

hospitals (as determined by the IPPS Final Rule Impact File, FY2013 with an intern and resident-to-bed ratio greater than 0) with a submitted Medicare Cost Report for FY2010 

and a DGME Cap and Count. These data reflect results from the resident limit redistribution programs as published at the CMS website. Data from the cost reports are “As 

Submitted” and may change upon audit. Major teaching hospitals are defined as having an intern and resident-to-bed ratio greater than or equal to 0.25. 


Resident Limit Redistributions 

ACA Affected Resident Caps in Two Ways: 

• Redistributed 65% of unused slots (Sec. 5503) 

• Redistributed all slots from hospitals that closed on or 

after 3/23/2008 (and forever into the future!) (Sec. 

5506) 


Sec. 5506: Redistribution of Slots 

from Closed Hospitals 

Redistributes DGME and IME slots from hospitals 

that close 

• Preference to hospitals located near closed 

hospital 

• Approximately 1,089 DGME slots and 1,042 

IME slots and counting 


Sec. 5506 Slots by Teaching Status – 

First Round 

Number of 


Total Average Median 

IME All 57 662.06 11.62 7.62 

Major 35 481.16 13.75 8.04 

Other 22 180.90 8.22 5.86 

COTH 35 437.45 12.50 7.82 

DGME All 62 695.27 11.21 7.00 

Major 39 497.58 12.76 7.87 

Other 23 197.69 8.60 5.67 

COTH 41 465.68 11.36 6.76 

A total of 88 hospitals applied for DGME/IME Slots: 

• 70% received DGME slots 

• 65% received IME slots 

• 89% of hospitals awarded slots received both IME and DGME slots 

COTH accounts for: 

• 66% of the IME and 67% of the DGME slots awarded 

Note: IME slot increases ranged from 0.01 to 86.06. DGME slot increases ranged from 0.01 to 78.41. 

Source: AAMC Analysis of "Section 5506 Cap Increases Related to Applications Due April 1, 2011,” posted 1/30/2012 at 

http://www.cms.gov/AcuteInpatientPPS/06_dgme.asp. 


Sec. 5506 IME Slots by State – 

First Round 

238 

COTH hospitals in 9 states received IME 

slots for a total of 437.45 IME slots. 

201 

138 

135 

100 

77 

61 

30 

25 

25 

15 15 13 13 

6 

0 3 3 1 0 

New York Illinois New Jersey Alabama Pennsylvania South 

Carolina 

Arizona Indiana Connecticut Michigan 

All Hospitals 

COTH 




Sec. 5506 DGME Slots by State – 

First Round 

All Hospitals 

COTH 




Top 5 Hospitals with Sec. 5506 

IME/DGME Slots Awarded – First Round 

Hospital Name State IME Slots Awarded IRB ratio 

The University of Illinois at Chicago Medical Center* IL 86.06 1.0076 

The Mount Sinai Hospital* NY 52.04 0.6516 

Richmond University Medical Center NY 34.21 0.3386 

Northwestern Memorial Hospital* IL 32.55 0.371 

University Of Alabama Hospital* AL 30.47 0.2959 

Hospital Name State DGME Slots Awarded IRB ratio 

The University of Illinois at Chicago Medical Center* IL 78.41 1.0076 

The Mount Sinai Hospital* NY 55.88 0.6516 

Northwestern Memorial Hospital* IL 36.76 0.371 

Morristown Memorial Hospital* NJ 32.69 0.2444 

University Of Alabama Hospital* AL 31.91 0.2959 

Note: An asterisk indicates the hospital is a COTH Member as of January 2012. 




2012 AAMC Annual Meeting 

Readmissions

Medicare Readmission Reduction 

Program 

• Effective FY 2013 

• Conditions Measured: 

• FY2013-2014 Heart Attack, Heart Failure and Pneumonia 

• FY2015 expand to 4 additional conditions (COPD, CABG, 

PTCA, Other Vascular) 

• Reduction applies to all base DRG payment amounts 

(excludes IME, DSH, outliers) in hospitals with excess 

readmissions 

• “Excess” defined as ratio of actual to expected readmissions 

(risk adjusted) 

• Reduction is capped at 1%, 2%, and 3% in initial 3 years 


Concern with Risk Adjustment 

• Risk adjustment is critical when comparing outcomes 

across hospitals to ensure adequate and fair 

comparisons 

• Current risk-adjustment methodology for 30-day 

readmissions adjusts for age, gender and a set of comorbidities 

for clinical risk (HCCs) 

• The risk adjustment does not address socio-economic 

status (SES) 

• AAMC conducted research to determine if AMCs were 

disproportionately impacted by the current riskadjustment 

and evaluate alternate approaches 


Readmission Rates are Higher for 

Major Teaching Hospitals (2009) 

30-Day Readmission Rates for Teaching and Non-teaching Hospitals 

Source: KNG Analysis of 2009 100% Medicare inpatient file and FY2011 Hospital IPPS final rule impact file. 


Readmission Rates are Higher for 

Dual Eligibles (2009) 

30-Day Readmission Rates for Dual and Non-dual Eligible Beneficiaries 

Source: KNG Analysis of 2009 100% Medicare inpatient file and FY2011 Hospital IPPS final rule impact file. 


Distribution of Hospitals by Percent of Duals: 

AMI 

Percent of Dual Eligible Patients for AMI 

Percent of Hospitals 

0 5 10 15 

0 20 40 60 80 100 

Percent of Dual Eligible 

Source: KNG Health Analysis of 2009 100% Medicare inpatient claims data and 2009 100% denominator file. 

Note: Sample includes hospitals with 25 or more admissions for the condition during a hypothetical 3-year period 

(i.e. 3 times the number of admissions in 2009). 


Approach: Model Specification and 

Stratification 

Consistent with CMS, we used hierarchical regression model to estimate 

the impact of factors on hospital readmissions. 

In “blended” model, we estimated separate models for duals and nonduals; 

otherwise models were the same as the base model. We 

calculated a “composite” risk-standardized readmission rate (RSRR) for 

each hospital as follows: 

1. (Predicted Readmissions for Duals/Expected Readmission for Duals) * % of Duals 

2. (Predicted Readmissions for Non-Duals/Expected for Non-Duals) * % of Non- 

Duals 

3. Composite RSRR = (1 + 2) * national readmission rate 

The composite RSRR was compared to the RSRR from the base model 


KNG Health Consulting, LLC 

27

Impact of Dual Eligible Model 

Distribution of RSRR for AMI 

Density 

0 .1 .2 .3 

Separate models for dual and 

non-duals. RSRR = weighted 

average of dual and non-dual 

predicted over expected 

readmission rates multiplied by 

the national readmission rate 

15 20 25 30 

RSRR 

Weighted Average of Two Scores 

Single Score 

Source: KNG Health Analysis of 2009 100% Medicare inpatient claims data and 2009 100% denominator file. 

Note: Sample includes hospitals with 25 or more admissions for the condition during a hypothetical 3-year period 

(i.e. 3 times the number of admissions in 2009). 


KNG Health Consulting, LLC 

28

Readmission Program Impact on 

COTH Members 

48 

19% 

No Penalty (adjustment=1) 

171 

69% 

29 

12% 

Max Penalty (adjustment=0.99) 

Penalty (adjustment

Readmission Program Average Impact 

$100,000 

$0 

-$100,000 

-$200,000 

-$300,000 

-$400,000 

Major Other Non 

Teaching Status 

Note: Major teaching hospitals are defined by a ratio of interns and residents to beds (from the Impact file) of 0.25 or greater, while 

other teaching hospitals have a ratio of greater than 0 and less than 0.25. 

Source: AAMC analysis of the FY 2013 IPPS Final Rule Impact and Hospital Readmissions Reduction Program-Supplemental Data 

(revised September 2012) files 


Value-Based Purchasing (VBP) 

• Move from pay-for-reporting to pay-for-performance 

• Must meet thresholds based on achievement or 

improvement to receive incentive payment 

• Phased-in reduction to base DRG payment to fund 

incentive pool: 1% for FY2013 increasing by quarter 

increments annually up to 2% in FY2017 

• Applies to base DRG payment only, does not affect 

IME, DSH and outlier payments 

• Budget neutral – all funds are returned to hospitals 


VBP Average Impact 

$6,000 

$4,000 

$2,000 

$0 

-$2,000 

-$4,000 

-$6,000 

-$8,000 

-$10,000 

-$12,000 

Major Other Non 




Source: AAMC analysis of the FY 2013 IPPS Final Rule Impact file 


How is the VBP Money Moving? 

Major, $159M 

Other, $322M 

Non, $384M 

VBP 

Incentive 

Pool 

Major, $156M = 1.7% Loss 

Other, $314M = 2.4% Loss 

Non, $392M = 2.1% Gain 



Source: AAMC analysis of the FY 2013 IPPS Final Rule Impact file 


VBP Domains for FYs 2014 - 15 

Domain Weighting 

FY 2014 

Domain Weighting 

FY 2015 

30% 

25% 

45% 

Process 

Outcomes 

HCAHPS 

20% 

30% 

20% 

30% 

Process 

Outcomes 

HCAHPS 

Efficiency 


Medicare Spending Per 

Beneficiary (MSPB) 

• The Affordable Care Act (ACA) states the Secretary 

must ensure that efficiency measures are included 

in a hospital value-based purchasing program 

• The ACA requires the use of Medicare Spending 

per Beneficiary measures (MSPB) 

• CMS has finalized the inclusion of the MSPB 

measure in the VBP program for FY2015 


Calculating the Spending Amount 

• Based on episodes of care 3 days prior to 

admission through 30 days post discharge 

• Includes all part A and B services (including outlier 

payments) 

• Utilizes Medicare Advantage risk-adjustment which 

adjusts for age and co-morbid conditions (HCCs) 

• Uses standardized pricing 

• Scores are calculated based on a hospitals’ 

average spending across all eligible episodes 

compared to the national median 


Exclusions 

•IME and DSH payments 

•Transfers between acute care hospitals 

•Patients who died during episode 

•Statistical outliers 


Determining the Spending Ratio 

• Each hospital’s score is ratio 

• Ratios are calculated based on a hospitals’ average 

spending across all eligible episodes compared to 

the national median 

• Interpreting scores: 

• 1 = Spending is about the same as the national 

median 

• >1 = Spending is MORE than the national 

median 

• < 1 = Spending is LESS than the national median 


MSPB National Distribution 

50% 

Medicare Spending Per Beneficiary – All 


Discharges May 2010-February 2011 

Percent of Hospitals 

40% 

30% 

20% 

10% 

0% 

Min 0.32 0.7 0.8 0.9 1 1.1 1.2 1.3 

LOWER spend per patient 

compared to national median 

Ratio 

HIGHER spend per patient 

compared to national median 

Note: N = 3,374 hospitals. 

Source: AAMC analysis of Hospital Compare and AAMC member data - April 2012. 


COTH Spend Slightly Higher 

50% 

Percent of hospitals 

40% 

30% 

20% 

10% 

0% 

Min 0.7 0.8 0.9 1 1.1 1.2 1.3 Max 

0.75 Ratio 

1.14 

LOWER spend per patient compared to 

national median 

HIGHER spend per patient compared to 

national median 

Note: COTH members (integrated, independent and specialty) n= 260 

Source: AAMC analysis of Hospital Compare and AAMC member data - April 2012. 


MSPB - Where Spending Occurs 

Breakdown by Claim Type (All Hospitals) 

4% 

16% 

Home Health Agency 

Hospice 

59% 

15% 

1% 

Inpatient 

Outpatient 

Skilled Nursing Facility 

Durable Medical Equipment 

Carrier 

4% 

1% 

Source: AAMC analysis of the MSPB Spending Breakdowns by Claim Type file, available at 

http://hospitalcompare.hhs.gov/Data/spending-per-hospital-patient.aspx 


Hospital Outpatient Payments 


Physician Payments at HOPD 

For many services, Medicare has different 

payment rates to physicians based on the site of 

service 

• “Office” or “Non-Facility” 

• Physician payment higher 

• Physician responsible for rent, other practice 

expenses 

• “HOPD” or “Facility” or “Provider-Based” 

• Physician payment lower – (fewer expenses) 

• Hospital can submit a separate bill for facility costs 

• Total payment (physician + hospital) higher 


Hospital Outpatient Department 

(HOPD) E/M Cuts - MedPAC 

January 2012 – MedPAC formally adopted a 

recommendation 

• “…reduce payments for evaluation and 

management office visits provided in outpatient 

departments so that total payment rates for 

these visits are the same in an outpatient 

department for physician office….” 

• (MedPAC Report March 2012) 

• Phase transition over 3 years 

• Limited stop loss for hospitals with DSH patient percent at or above 

median (@25%) 

• Study by 2015 to examine impact on access for low-income 

patients 

• Greatest impact on major teaching and nonprofit hospitals 


MedPAC Proposal 

99213 - Midlevel Established Patient Visit 

Fees* Physician Office HOPD Differential 

Physician Fee $68.97 $49.27 ($19.70) 

Hospital Fee N/A $75.13 

$19.70 

Total $68.97 $124.40 

$68.97 

+$75.13 

+$19.70 

+$55.43 

$0 

* Fees based on national 2011 rates and include patient copay. 

74% reduction to 

hospital payment 


Impact of E/M Recommendation 

Varies across Academic Centers 

Millions 

$16 

$14 

$12 

$10 

Annual Reduction 

$8 

$6 

$4 

$2 

$0 

Impact by Faculty Practice 

Source: Analysis of Faculty Practice Solutions Center based on 2010 posted claims 


Study 

AAMC contracted with The Moran Company to 

understand the types of patients served at HOPDs 

• Do the patient characteristics differ between 

HOPDs and physician offices? 

• How do the characteristics differ across 

different types of hospital cohorts (DSH Patient 

Percentage, teaching status)? 

• What is the financial impact? 

• Summary data and hospital-specific data 


Medicare Claims Data 

• 2010 Medicare 5% standard analytic file to 

understand visit characteristics 

• OPPS 2013 rate setting file to estimate financial 

impact to hospitals 


Distribution of Medicare E/M 

Visits 

E/M Visits 


Non 30% 

Minor 

24% 

Office 

93% 

HOPD 7% 

Major 

45% 

DSH Patient Percent 

>=25% 

57% 

No DPP* 

4% 

< 11.75% 

8% 

11.75 - 25% 

31% 

Source: The Moran Analysis of 2010 5% Medicare Standard Analytic File 


*No DPP refers to hospitals 

with zero DSH payment or 

missing DSH payment data

HOPD Visits Treat Higher Risk Patients and Serve 

More Vulnerable Patient Populations 

35% 

Percent of Hospital E/M Visits 

30% 

25% 

20% 

15% 

10% 

5% 

Average Risk 

Score/Visit 

Office Visit 1.70 

HOPD Visit 2.12 

0% 

Duals Disabled Non-White 

Source: The Moran Analysis of 2010 5% Medicare Standard Analytic File; risk score based on HCC model 


Major Teaching Hospitals Serve 

Proportionately More Vulnerable Patients 

40% 

Percent Hospital E/M Visits by Patient Population 

30% 

20% 

Non-Teaching 

Minor Teaching 

Major teaching 

10% 

0% 

Duals Disabled Non-White 

Source: The Moran Analysis of 2010 5% Medicare Standard Analytic File 


Total OPPS Payment Losses for E/M Visits 

National* Reduction in OPPS Payments 

All hospitals: ~ $1.07 Billion 

Teaching Hospitals: ~ $740 Million 

Major Teaching Hospitals: ~ $454 Million 

All Hospitals with DPP>25%: ~$621 Million 

*Excluding MD & PR 

Source: The Moran Analysis of OPPS 2013 rate setting file 


High Level Findings 

• Proposed “equalizations” disproportionately affect 

America’s teaching hospitals 

• 69% of the total reductions come from teaching 

hospitals 

• 45% of the total reductions come from major 

teaching hospitals 

• AAMC members provide disproportionate health care 

services to challenging patient populations including 

duals, disabled, and “non-white” patients compared to 

other hospitals and physician offices 



Payment Bundling

What is a bundled payment? 

• New payment model where services in a 

specified time period are “bundled” together 

into a single “payment” 

• Payment model is between the extremes 

of fee-for-service and full-capitation 

• Encourages care coordination across providers 

• Beneficiary participation is triggered by an “anchor event” 

(i.e., hospital admission). 

• Hospital and professional services for the medical 

condition over a defined time period are included in the 

definition of the episode of care. 

55 


Two Payment Bundling Initiatives 

AAMC 

Research 

• Research 

sponsored by 

AHA and AAMC 

• Policy 

Implications 

AAMC 

Convener 

• Bundled 

Payment for 

Care 

Improvements 

• Implementation 

56 


AHA-AAMC Bundling Analysis 

Key Questions: 

• How to define a bundle? 

• Which conditions? Length of bundle? Which services to 

include/exclude? 

• How to price a bundle? 

• Impact of add-on payments (IME/DSH) 

• Risk adjustment, outliers 

• How to manage a bundle? 

• Understanding the path through a bundle, readmissions 

• Other policy considerations? 


Data Methodology 

• AHA and AAMC contracted with Dobson|DaVanzo to 

analyze 5% patient-identifiable Medicare claims data 

• Includes functional ability data 

• Episodes start with inpatient hospital admission (“index 

hospitalization” or “anchor hospital stay”) and end 7, 

15, 30, 60 or 90 days following discharge 

• Descriptive and multivariate analyses 


Defining the Bundle 

Characteristics of Clinical Conditions Best Suited 

to Payment Bundling 

• Adequate prevalence, with sufficient sample size to 

predict costs and show the effect of clinical 

interventions 

• Significant resource consumption for the Medicare 

program, either from being expensive on a per-episode 

basis or because of high case volume 

• Adequate variation in Medicare payment to allow for 

efficiency gains, but not so much variation that the risk 

of multiple outlier cases outweighs the reward 

• Availability of clear, evidence-based clinical care 

guidelines 


Cardiac and Orthopedic MS-DRGs, Stroke, and 

Heart Failure Meet Several Characteristics 

Important for Payment Bundling 

Prevalent 

High Low Evidence- 

Select MS-DRG Families by Criteria for 

in High Total Average Variance in Based 

Payment Bundling* 

Medicare Episode Episode Episode Practice 

MS-DRG Family 

Population Payments Payment Payments Guidelines 

Acute ischemic stroke w use of thrombolytic agent (61, 62, 63) x x 

Intracranial hemorrhage or cerebral infarction (64, 65, 66) x x x 

Nonspecific cva & precerebral occlusion w/o infarct (67,68) 

x 

Chronic obstructive pulmonary disease (190, 191, 192) x x x 

Simple pneumonia & pleurisy (193, 194, 195) x x x 

Cardiac valve & oth maj cardiothoracic proc (216, 217, 218, 

219, 220, 221) 

x x x 

Coronary bypass (231, 232, 233, 234, 235, 236) x x x 

Perc cardiovasc proc w drug-eluting stent (247) x x x x 

Heart failure & shock (291, 292, 293) x x x 

Bilateral or multiple major joint procedures of lower extremity 

(461, 462) 

x x x 

Revision of hip or knee replacement (466, 467, 468) x x x 

Major joint replacement or reattachment of lower extremity 

(469, 470) 

x x x x 

Hip & femur procedures except major joint (480, 481, 482) x x x x x 

*Criteria include prevalence in the Medicare population (>1% of episodes), high total episode payments (>2% 

of total payments) or average episode payments (>$20,000), low variance in episode payments (CV

Pricing the Bundle 

Add-on payments such as indirect medical 

education (IME) and disproportionate share (DSH) 

affect the price of bundle 

• Including add-ons to the bundle increases 

the average bundle price for major teaching 

hospital 

• Yet excluding add-ons from bundle 

calculations does not recognize losses from 

reduced readmissions 


Pricing the Bundle: Add-On Payments 

Increase Bundle Price 

Source: Dobson | DaVanzo Analysis, 30-day episodes, 2007-2009 5% Medicare claims 


Pricing the Bundle: Add-on Payments 

Impact Readmissions 

Average Add-On Payments for Readmissions 

(30-day Episodes) 

Source: Dobson | DaVanzo Analysis, 30-day episodes made from 2007-2009 5% Medicare claims 

Add-ons can represent up to 60% of the Base 

DRG payment for Major Teaching Hospitals 


Pricing the Bundle: Regression 

Methodology 

Dobson DaVanzo performed a series of multivariate regression 

analyses to simulate a nationwide bundled payment system 

• Dependent Variable: Current Medicare allowed payment per 

episode (including patient copayments, Indirect Medical Education 

[IME], disproportionate share hospital [DSH] payments, and 

capital) 

• Independent Variables: Beneficiary, facility, and episode 

characteristics (e.g. age, sex, chronic conditions, functional ability, 

IME, first post-acute care setting after hospital discharge) 

Simulated bundled payments are the “predicted” Medicare allowed 

payments under the various models for each patient episode 

Dobson/DaVanzo then applied an outlier model comparable to the 

Inpatient Prospective Payment System (IPPS) outlier policy 


Pricing the Bundle: Patient and Hospital 

Variables Included in Pricing Model 

Naïve Model Model A Model B Model C 

MS-DRGs x x x x 

Age Variable 

x x x 

Sex s 

x x x 

Race Include 

x x x 

Chronic d in Conditions x x x 

HCC Each Count x x x 

Functional Episode Ability x x x 

Live Paymen Alone x x x 

Dual t Model Eligibility x x x 

IME x x x 

DSH x x x 

Index Outlier Payment x x x 

Look Back CCU x x 

Look Back ICU x x 

Episode Death x x 

Region x x 

Rural x x 

Bed Size x x 

Unique Physician Count x x 

First PAC Setting 

x 


Pricing the Bundle: Factors that Drive Payment 

Bundles 

Progression of R 2 Value with Addition of Variables in Model A, Model B, and Model C 

All MS-DRGs (Number of Observations = 1,292,352) 

Regression Model Variables Cumulative R 2 * 

MS-DRG 0.511 

Age, Sex, Race 0.514 

Chronic Conditions 0.528 

Model A 

HCC Count 0.534 

Functional Ability and Live Alone 0.647 

Model B 

= Contribution to 

Explained Variance 

Dual Eligibility 0.647 

IME, DSH, Index Outlier Payment 0.669 

Look Back CCU, ICU, and Episode Death 0.669 

Region 0.669 

Rural 0.669 

Bed Size 0.670 

Unique Physician Count 0.762 

Model C First PAC 0.781 

Source: Dobson | DaVanzo Analysis, 30-day episodes , 2007-2009 5% Medicare claims, no outlier model applied 

* The adjusted-R 2¸ which accounts for degrees of freedom, was nearly identical to the R 2 values presented and follows 

the same trend. 

 

 

 

 


Managing the Bundle: Readmissions 

significantly add to cost of episode 

Average Medicare Episode Paid by Readmission Status for Select MS-DRGs 

(30-Day Episode) 

Average Medicare Episode Paid 

$35,000 

$30,000 

$25,000 

$20,000 

$15,000 

$10,000 

$5,000 

Surgical 

Medical 

$0 

247 470 481 192 194 291 

MS-DRG 

Episode With a Readmission 

Episode Without a Readmission 

247: Percutaneous cardiovascular procedure with drug-eluting stent w/ MCC 192: Chronic obstructive pulmonary 

disease without CC/MCC 

470: Major joint replacement or reattachment of lower extremity w/o MCC 194: Simple pneumonia & pleurisy w CC 

481: Hip & femur procedures except major joint w CC 291: Heart failure & shock 

w MCC 

Source: Dobson | DaVanzo Analysis, 30-day episodes, 2007-2009 5% Medicare claims 

67 


Managing the Bundle: Percent of Episodes 

with a Readmission for Select MS-DRGs by 

First Setting (30-Day Episode) 

First Setting 

Percent of Episodes with a Readmission by MS-DRG 

Surgical 

Medical 

247 470 481 192 194 291 

HHA 17.4% 4.0% 6.9% 18.5% 16.8% 24.8% 

SNF 29.1% 8.7% 13.6% 21.2% 18.6% 27.7% 

IRF * 8.5% 11.5% 23.7% 14.0% 29.2% 

LTCH * 6.9% * 18.9% 12.9% 19.7% 

Community 7.8% 5.0% 13.1% 12.9% 12.3% 23.1% 

Other 12.9% 3.8% 6.8% 17.8% 13.0% 14.8% 

Total 11.3% 6.6% 12.6% 17.1% 15.7% 24.2% 





w MCC 

Source: Dobson | DaVanzo analysis of research-identifiable 5% SAF for all sites of service, 2007-2009, wage index adjusted 

by setting and geographic region, and standardized to 2009 dollars. 

* Indicates cell size fewer than 11 observations. 

68 


Managing the Bundle: Percent of 

Readmissions for Select MS-DRGs by 

Antecedent Setting (30-Day Episode) 

Percent of Readmissions by MS-DRG 

Antecedent 

Surgical 

Medical 

Setting 

247 470 481 192 194 291 

Home Health 4.4% 25.8% 7.9% 13.3% 15.2% 17.4% 

SNF 2.3% 38.4% 65.5% 6.4% 20.1% 21.0% 

Inpatient Rehab * 8.8% 10.4% 0.4% 0.5% 1.0% 

Long-Term Care * * * * 0.3% 0.5% 

Community 84.3% 18.3% 9.5% 74.6% 56.9% 52.9% 

Other 8.2% 8.3% 5.4% 4.9% 6.9% 7.3% 

Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 





w MCC 

Source: Dobson | DaVanzo analysis of research-identifiable 5% SAF for all sites of service, 2007-2009, wage index adjusted 

by setting and geographic region, and standardized to 2009 dollars. 

* Indicates cell size fewer than 11 observations. 

69 


Managing the Bundle: 

Understanding the Patterns 

MS-DRG 470:Major joint replacement or reattachment 

of lower extremity w/o MCC 

Facility-Based 

Sequence Stops: 

A=STACH (Index or 

Readmission) 

H=HHA 

I=IRF 

L=LTCH 

S=SNF 

Ambulatory-Based 

Sequence Stops: 

C=Community 

(Physician and 

Outpatient) 

E=ER 

P=OP Therapy 

T=Hospice 

Z=Other IP 

Pathway 

Number of 

Episodes 

Percent of 

Episodes 

Average 

Medicare 

Episode Paid 

A-H-C 236,300 20.7% $14,519 

A-S-H-C 116,300 10.2% $20,039 

A-S 88,900 7.8% $23,396 

A-C 84,220 7.4% $12,078 

A-I-H-C 50,460 4.4% $26,925 

A-S-C 48,620 4.3% $18,786 

A-S-H 44,240 3.9% $21,481 

A-H-C-P 34,360 3.0% $14,649 

A-H 26,860 2.4% $14,145 

A-P-P 24,740 2.2% $12,317 

Subtotal 755,000 66.2% $17,575 

Other 385,340 33.8% $21,501 

Total 1,140,340 100.0% $18,901 

Source: Dobson | DaVanzo analysis of research-identifiable 5% SAF for all sites of service, 2007-2009, wage index adjusted by setting and 

geographic region, and standardized to 2009 dollars. All episodes have been extrapolated to reflect the universe of Medicare beneficiaries. 

Medicare Episode Paid includes care from all facility-based and ambulatory care settings and excludes beneficiary co-payments. IME, DSH, 

copay, capital, and other third party have been removed from payments. HH PPS payments do not include payments for Part D drug or DME 

services that are provided under SNF, IRF, and LTCH PPS payments. 

70 


Key Findings 

• Bundling is here 

• Providers/policy makers need to consider several 

factors in designing/implementing bundling program 

• Pricing the bundle 

• Including beneficiary demographic and clinical 

characteristics, as well as add-on payment factors in 

risk adjustment better predict price of a bundle 

• Managing the Bundle 

• Understand how patient moves through bundle 

• Readmission trends 

Issue Brief and Comprehensive Report at 

www.aamc.org/bundling 


AAMC as Convener: Bundled 

Payments for Care Improvement 


Bundled Payments for Care 

Improvement Initiative (BPCI) 

• Announced in August 2011 by the CMS 

Innovations Center (CMMI); option to apply for 

four different models of bundled payments 

• Included the unique role of “convener” who 

applies with partner organizations and provides 

technical assistance 

• AAMC Partners: Brandeis University for data 

analysis and Manatt Health Solutions for project 

management 

73 


Bundled Payment Models 

Overview 

Episode 

Definition 

Beneficiary 

Inclusion 

Criteria 

(Reason for 

hospitalization 

+ other) 

Trigger 

MS- 

DRGs 

Inpatient Index Hospitalization Professional 

Index Inpatient Hospitalization 

Professional 

Professional Services 

Facility & Other Services 

Outpatient Professional 

Post-Acute: IRF, SNF, HHA 

Episode anchor 

End of Episode 

Episode Payment 

CMS characterizes this as a 

“discount arrangement” 

NOT “shared savings” so 

that awardees can 

participate in other CMS 

“shared savings” initiatives 

Prior Amount 

Traditional 

Medicare FFS $ 

New: Episode Target Price 

Discounted 

Traditional 

Medicare FFS $ 

(Retrospective 

Reconciliation) 

Model #2,#3 

Prospective 

Medicare 

Payment 

Amount $ 

Model #4 

74 


AAMC Applicant Organizations 

• Albert Einstein 

Healthcare Network (PA) 

• Atlantic Health (NJ) 

• Duke 

• NYU Langone Medical 

Center 

• Our Lady of the Lake 

Regional Medical Center 

(LA) 

• Penn State Hershey 

Health System 

• Sinai Health System (IL) 

• UCSF 

• University of Colorado 

• Vanderbilt University 

Medical 

75 


Anticipated CMS Timeline 

Early 

October 

Mid- 

October 

Winter 

2012/2013 

Late Spring 

2013 

76 

• After review • CMS to release 

panels complete information on 

recommendations, determining target 

CMS will notify price, risk 

applicants of 

adjustment, 

status (“candidate beneficiary 

awardee” or not) exclusions, 

• CMS staff will 

pro-ration 

initiate 

methodology for 

conversations with candidates 

“candidate • CMS works to 

awardees” 

address 

• CMS to present “candidate 

range of 

awardee” 

“converged 

questions 

episode 

definitions” 

• Waiver discussion 


• CMS will identify 

“recommended 

awardees” 

• CMS to hold 

discussions with 

“recommended 

awardees” 

• CMS will complete 

necessary 

discussions with 

other federal 

agencies 

• Waivers finalized 

• Sign model 

agreements 

• Complete 

implementation 

protocols (ex. 

more detailed 

gainsharing 

arrangement) 

• Start performance 

period (stipulated 

in contract)

Brandeis Data Analysis 

Total allowed amount 

Scale of 2% discount 

Distribution of allowed amount 

Episod 

e type Cases Period Mean Min 1st 5th 25th Median 75th 95th 99th Max. 

PNE 221 

Index 

stay 8,619 3,176 3,682 4,638 6,394 7,657 10,492 14,400 16,554 18,527 

Number 

Index 

% of 

% of 

total 

Episode of Index stay stay Post- Total 

Medicare hospital 

type cases (facility) (prof.) discharge episode Dollars inpatient revenue* 

AMI 203 1,932,162 533,572 3,140,127 5,605,860 112,117 0.17% 0.04% 

13,066,31 

CHF 476 3,012,750 925,859 9,127,710 9 261,326 0.39% 0.10% 

COPD 378 2,097,708 557,306 5,743,799 8,398,813 167,976 0.25% 0.06% 

KNHIP 245 3,014,101 742,620 4,916,876 8,673,597 173,472 0.26% 0.06% 

PNE 414 2,866,507 714,947 5,580,366 9,161,820 183,236 0.27% 0.07% 

STR 180 1,305,745 361,156 3,606,874 5,273,775 105,475 0.16% 0.04% 

SUB- 

TOTAL 1,896 

14,228,97 

33,835,460 

32,115,75 

0 

50,180,18 

31,003,604 1.48% 0.37% 

Readm. - 

Own 585 3,830,444 . . . . . . 

Readm. - 

Other 181 1,549,598 . . . . . . 

Other 

49,724,14 

Medicare 6,931 1 . . . . . . 

Total 

Medicare 9,412 

67,783,55 

8 . . . . . . 

Post- 

Acute 10,525 0 0 0 1,454 5,537 15,800 36,025 57,609 78,708 

Total 19,144 4,599 4,963 6,520 10,043 14,200 24,886 45,561 68,811 90,676 


Brandeis Data Analysis 

Mean allowed amount 

Cases with 

readmission 

Cases with office visit 

in 30 days 

Cases with ED visit 

Episode 

type 

Number 

of 

cases 

Index stay 

(facility) 

Index stay 

(prof.) 

Postdischarge 

Total 

Episode Cases Rate Cases Rate Cases Rate 

AMI 70 7,127 2,358 12,769 22,253 23 32.90% 31 44.30% 11 15.70% 

CHF 192 5,785 1,577 15,372 22,734 72 37.50% 75 39.10% 37 19.30% 

COPD 210 5,077 1,183 10,999 17,260 57 27.10% 134 63.80% 43 20.50% 

KNHIP 147 11,512 2,937 16,762 31,212 11 7.50% 39 26.50% 5 3.40% 

PNE 242 6,174 1,651 12,250 20,074 55 22.70% 117 48.30% 32 13.20% 

STR 61 6,711 1,805 22,038 30,554 11 18.00% 16 26.20% 15 24.60% 

Cases with one or more readmissions 

Readmissions 

by location 

Readmit per 

Episod 

e types Cases Rate Cases 1 2 3 4+ Readmits 

case with 

readmit Own Other 

AMI 203 31.5% 64 43 18 3 0 88 1.38 57 31 

CHF 476 39.9% 190 122 39 12 17 317 1.67 232 85 

COPD 378 33.6% 127 89 25 7 6 184 1.45 158 26 

KNHIP 245 13.1% 32 26 6 0 0 38 1.19 34 4 

PNE 414 20.3% 84 69 12 2 1 103 1.23 84 19 

STR 180 15.6% 28 22 4 2 0 36 1.29 20 16 


BPCI Lessons Learned To Date 

• AMCs know what bundles to pursue 

• The data serves to reinforce clinical judgment, not 

necessarily to change plans 

• Chronic conditions tend to be more costly with higher 

readmit rates, and are messier to bundle 

• There are many reasons hospitals choose not to 

participate, including a variety of clinical and 

organizational factors 

• Literature on evidence-based practices in care 

redesign is limited 

• Bundling requires new relationships with providers and 

PAC, these relationships bring new operational 

challenges 

79 


Upcoming Projects 

• IME Adjustments 

• Objectives 

– Creation of a representative and 

reproducible analysis of the current known 

metrics as well as additional, salient 

metrics to quantify the rationale for IME 

payments. 

– Test new model of IME cost accounting 

with actual data from a regionally and 

nationally meaningful sample. 

– Consider not only inpatient but also 

outpatient costs. 


Questions??? 

Additional information about Health Care Affairs at 

our new website: 

www.aamc.org/patientcare

Hospitals

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