Solving the PPI Problem

Lori Pilla

By Lori Pilla, Vice President, Supply Chain Optimization and Intalere Clinical Advantage, Intalere

The costs and inherent issues of physician preference items (PPIs) in hospitals and surgery centers have been challenges in the healthcare setting for many years. But as providers are faced with shrinking reimbursements and service line contribution margins in this era of healthcare reform, finding innovative ways to align with physicians and reduce costs while maintaining high standards of quality care takes on even greater importance.

With 10,000 people each day turning 65, and the reality that this portion of the population will grow to 20% by 2030 and that 1 in 12 of the population will have total knee replacements, this device cost issue will continue to escalate.

But just recently, the need to act on this issue reached a new level of critical urgency when the Centers for Medicare and Medicaid Services (CMS) proposed a mandatory bundled payment model encompassing total joints, called Comprehensive Care for Joint Replacement (CCJR). Specifically, CCJR is a bundled payment model that covers care for joint replacement patients from admission through 90 days following discharge including physicians services, inpatient services, long-term care, rehabilitation, skilled nursing, durable medical equipment, pharmacy and more.

The model will be implemented beginning January 16, 2016, for five years in 75 cities that cover approximately 35% of the country’s population. Hospitals in these areas will be required to participate in CCJR under the current proposal. The areas are a mix of large cities, which include New York City and Los Angeles, medium cities and smaller cities.

Prior to the start of each performance year, CMS will provide participant hospitals with Medicare episode prices, called target prices. The target price includes a 2% discount over expected spending and incorporates a blend of historical hospital-specific spending and regional spending. The new model is also aimed at providing incentives for improved quality of care as well. Hospitals will have to meet performance measures in three areas including:

  1. Risk-standardized complication rate following elective hip/knee replacement.
  2. 30 day all cause readmission rate following elective hip/knee replacement.
  3. Hospital consumer assessment.

Following completion of the performance year, hospitals that achieved spending below the target price and meet the quality performance thresholds on the three required measures will be eligible to earn a reconciliation payment from Medicare for the difference between the target price and the actual episode spending, up to a specified cap.

But what happens if the episode spending exceeds the target price? That burden will fall on the hospital – meaning the hospital is ultimately financially responsible for episode costs driven by physicians, skilled nursing facilities (SNFs) and post-acute providers.

Many providers will need to reduce their operating costs by 15-25% to assure continued viability in the value environment. This isn’t going to be achieved by simply reducing the cost of surgical sponges. As a result, physician alignment and post-acute partnerships are critical to success. Hospitals should closely align with high-quality, low-cost physicians and post-acute care providers. Therefore, executives need strategies for how to engage physicians in addressing hospital issues.

To learn more, including strategies you can undertake to address these challenges, download Intalere’s new briefing, Physician Alignment: Solving the PPI Problem.

 

 

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