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Boston Children’s Hospital

Enterprise Costing Workgroup Meeting

April 6, 2013

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OverviewIssues:

Rising Healthcare Costs Unprofitable Pricing MethodsProcess Inefficiency

Analysis:Time-Driven Activity-Based Costing (TDABC)

ApproachRecommendations:

Bundled PaymentPhysician Bonus Model

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BCH Financial PositionHistorically has reported higher costs against

competitors The largest provider to low-income families, with 30%

patients covered by MedicaidTreats 90% of the most critical and complex pediatric

cases in Massachusetts

Resulting Key Issue:Rising Healthcare Costs

Patient AttritionLapse in Medicaid contract with New HampshireBlue Cross Blue Shield Contract Renegotiation

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BCBS-MA: Alternative Quality Contract

Medical Expense Trend Comparison for AQC Enrollees and Non-AQC Enrollees

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Payment MethodsCharacteristic

Historical Capitation

Fee for Service (FFS) Bundled Payment

What is the time period of the payment?

Prorated payment per month for a

year

Paid post service

completion

Monthly payments with occasional budget

reconciliation

Which providers and services are bundled?

Physician, hospital, and PRN services related to a specific person (often capitated

separately)

No Bundling

Physician, hospital, and PRN services related to a budgeted payment for a

specific treatment, specific health event, or

chronic conditionAre performance or outcome measures present?

Sometimes No Yes

Is risk-adjustment included?

No No Yes

Who accepts the risk?Provider accepts

financial risk

Payer primarily accepts

financial risk

Provider bears short-term risk

Payor bears long-term risk

What drives physician action?

Volume and Access

ManagementVolume

Efficiency and quality (if paired with performance)

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3-Step Implementation Plan for Bundled Payment at BCH

Bundled Payment for Acute Care

Bundled Payment for

Acute Care and Post Acute Care

Bundled Payment for Post Acute

CarePhase

1Phase

2Phase

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•Specific treatments are bundled

•Ex. Clubfoot cast

•Specific health events are bundled

•Ex. Appendicitis

•Chronic conditions are bundled

•Ex. Type 1 Diabetes

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BCH Cost AnalysisCost Analysis

MethodRatio of Cost to Charges

(RCC)Relative Value Unit

(RVU)Time Driven Activity

Based Costing (TDABC)

Description

RCC approach assume costs are

proportional to charges

RVU measures the amount of resources consumed to provide

a service. Then allocates the RVU weight to labor

Bottom-up approach to costing that

estimates costs based on time used for

services

Benefits

Easy to calculate; simple proportion

demonstrating relationship

Takes into account indirect and direct costs; considers complexity of

services provided

Better cost allocation; easily breaks down

costs to identify service line problems; allows charges to be

more reflective of costs

Drawbacks

RCC measures cost to charge ratio, not cost

to reimbursement ratio

Allocation methodologies tend

to be imprecise during practice

Takes tremendous effort to implement

and launch this costing system;

requires constant re-evaluation

Accuracy Good Better Best

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Department of Plastic and Oral Surgery (DPOS)

WorksheetPersonnel Process Time (minutes)

Diagnosis Surgeon ASR RN CAPlagiocephaly 18 8 23 5

Neoplasm Skin Excision 22 55.5 20 5Craniosynostosis 40 10.5 23 10

Determination of Capacity CostAnnual Cost per person $522,720.00 $89,700.00 $134,550.00 $71,760.00

Clinical minutes available per year 87120 89700 89700 89700Capacity cost rate ($ per minute) $6.00 $1.00 $1.50 $0.80

Medical Diagnosis Cost per patient visit Surgeon ASR RN CA

Total Cost Charge

Average Reimbursement

TDABC PROFIT

RCC COST

RCC PROFIT

Plagiocephaly $108.00 $8.00 $34.50 $4.00 $154.50 $350.00 $224.00 $69.50 $210.00 $14.00

Neoplasm Skin Excision $132.00 $55.50 $30.00 $4.00 $221.50 $350.00 $224.00 $2.50 $210.00 $14.00

Craniosynostosis $240.00 $10.50 $34.50 $8.00 $293.00 $350.00 $224.00 $(69.00) $210.00 $14.00

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Department of Orthopaedic Surgery: Cast Room

Worksheet

Cost per procedure Surgeon ASR RN Total Cost Charge Average Reimbursement

TDABC PROFIT RVU COST RVU

PROFIT

Long leg cast, cotton padding $1.75 $60.00 $- $61.75 $523.00 $366.10 $304.35 $135.67 $230.43

Long leg cast, Gore-tex padding $1.75 $60.00 $8.25 $70.00 $584.00 $408.80 $338.80 $141.77 $267.03

Petrie long leg cast $1.75 $103.50 $- $105.25 $181.00 $126.70 $21.45 $112.98 $13.72

Clubfoot cast (hospital), full cycle $546.00 $135.00 $- $681.00 $975.00 $682.50 $1.50 $225.42 $457.08

Clubfoot cast (Foundation), full cycle $546.00 $135.00 $- $681.00 $715.00 $500.50 $(180.50) $393.25 $107.25

Personnel Orthopedic Surgeon Plaster/ Cast Technician Ambulatory Service RepresentativeDetermination of Capacity Cost

Annual Cost per person $693,000 $83,160 $62,370.00 Available minutes per year $99,000 $83,160 $83,160

Capacity cost rate ($ per minute) $7.00 $1.00 $0.75 Personnel Process Time (minutes)

Procedure MinutesLong leg cast, cotton padding 0.25 60.00 0.00

Long leg cast, Gore-tex padding 0.25 60.00 11.00Petrie long leg cast 0.25 103.50 0.00

Clubfoot cast (hospital; initial visit) 13.00 17.00 0.00Clubfoot cast (hospital; replacement visit) 13.00 22.00 0.00

Clubfoot cast (hospital; final visit) 0.00 8.00 0.00

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Impact of the TDABC Approach

With better costing measures, BCH can determine more accurate and fair prices for servicesPrices reflect acuity

Negotiate better bundled paymentsEasily identifies profit margins and

losses for each service lines

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Key IssuesIssue #1 Rising Healthcare

Costs

Issue #2

Unprofitable Pricing Methods

Issue #3 Process

Inefficiency

Issue #4

Patient Attrition

Recommendations1. Short term:

Bundled payment for acute care

2. Long term: Bundled payment for post acute care

Time-Driven Activity-Based Costing

(TDABC) Approach

Standardized Clinical Assessment and

Management Plans (SCAMPS)

1. Contain costs2. Implement

accurate costing 3. Streamline

processes

BCH Outcomes1. Cost containment2. Cost avoidance3. Enhanced quality4. Population health

1. Identify profit margin and loss for each service line

2. Accurate and acuity sensitive cost data

1. Eliminate waste2. Improve process3. Improve entire

patient care cycle

1. Improved revenues2. Better utilization of

resources 3. Increase in number

of patients

Recommendations for BCH’s Four Key Issues and the Resulting Organizational Outcomes

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Physician Bonus ModelBased on the Program for Patient Safety

and Quality (PPSQ)

Bonus Calculation

Safety Effectiveness Efficiency Timeliness

Patient-Centeredne

ssEquitabili

ty

1 2 3 4 5 6

Percentage of PPSQ

Measures Achieved

Number of Physicians for

the specific treatment

Total Bonus

Distribution Amount

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Evaluation of Aggregate Physician Bonus Payment

1 𝝌 0

𝝌1 = Bundled Payment 𝝌2 = Fee for Service

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Evaluation of Physician Bonus by Treatment

Falling Cost

Quality threshold (Best Practices)

Global budget line

Bonus adjustment for unpreventable adverse event

No bonus earned

Num

ber

of P

PSQ

Mea

sure

s Ach

ieve

d

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Porter’s Value ChainSe

rvic

e D

eliv

ery

Pre-Service Point-of-Service• Save time and

money• Attending a

hospital solely focused on children and their families

• Medicaid patients would receive care they otherwise would not have received

Increased quality of care

• Receive care from providers competing on quality and evidence based practices

• Value Driven Innovation

• More timely and efficient care

Accessibility to high quality network of care

Quality of Life• Increased

emotional well-being

• Less school and work days missed

Post-Service

Demonstrating Value to the Patient:Visual Display

• Display PPSQ results within each department

Technology

• Internet• Web-based Tools• Software

Systems

Communication

• Explanation of Quality Care

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Questions

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Appendix

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Exhibit A: Program for Patient Safety and Quality at BCH

Safety: Adverse events Central line infections in

Intensive Care UnitsTimeliness:

Emergency Department Length of Stay

Effectiveness: Pain Management Diabetes Care Lung Function in Patients

with Cystic Fibrosis Asthma Care

Efficiency: Length of Stay and

Readmission Rate

Equitability: Equitable nursing care

Patient-Centeredness: Inpatient satisfaction Outpatient satisfaction

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Exhibit B: SCAMPS Example

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Exhibit B: SCAMPS Example

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Exhibit B: SCAMPS Example

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Exhibit B:Standardized Clinical Assessment and Management Plans

(SCAMPS)

Reduces diversity of patient assessment Systematic approach to clinical assessments and

management algorithm Allowing better management of care Improving patient care delivery

Determines how effective current clinical processes and practices are

Ease transition towards health management interventions

Reduce unnecessary resource utilization .

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Exhibit C: Method for Measuring SCAMPS Shortfalls

The costs associated with any failure to meet the standardized care levels determined by SCAMPS will be calculated based on the TDABC approach.

Current BCH examples: No shows within the DPOSMiscommunications when transferring

patients from the Emergency Department

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Exhibit D:DPOS Cost Analysis Breakdown

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Exhibit E: Severity of Illness Index

Acute and Post-Acute care bundled payments adjust for case-mix severity of illness in different patient populations

Severity of Illness Index is a generic (not disease-specific) four-level index (increasing severity from level 1 to level 4) determined from the values of seven dimensions related to a patient's burden of illness. These dimensions are: Stage of the principal diagnosis, Complications of the principal condition, Concurrent interacting conditions that affect the hospital course, Dependency on hospital staff, Extent of non-operating room life support procedures, Rate of response to therapy or rate of recovery, Resolution of acute symptoms/signs.

It is not what is done to the patient that drives the Severity of Illness Index, but what the patient actually looks like.

The signs and symptoms of the patient's principal and secondary diagnoses, as well as the rate of response to therapy contribute most heavily to Severity of Illness coding.

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Exhibit F: What Constitutes an Unpreventable, Adverse

Event?According the World Health Organization, an adverse

event is defined as an injury related to medical management and not due to the complications of a disease.

According to Boston Children’s Hospital, an adverse event is defined as something that unintended that happens in a hospital which causes either harm or the risk of harm to patients.

Examples of unpreventable adverse events: Drug reaction in a patient with no history of prior drug

reaction Side effect of chemotherapy in a patient who must endure the

chemotherapy in order to be cured of cancer

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Key IssuesIssue #1

Rising Healthcare Costs

Issue #2

Unprofitable Pricing Methods

Issue #3

Process Inefficiency

Issue #4

Patient Attrition

Recommendations1. Short term:

Bundled payment for specific treatment

2. Long term: Bundled payment for chronic condition

Time-Driven Activity-Based

Costing (TDABC) Approach

Standardized Clinical Assessment and

Management Plans (SCAMPS)

1. Contain costs2. Implement

accurate costing3. Streamline

processes

Outcomes on Patient Value1. Patient receives

more outcome driven care centered around the full cycle of care

2. Patient saves time and money as only the necessary medical services are performed

1. Potential to reduce charges for services, saving the patient money

1. Better quality of care2. Improves quality of

life for both the child and the parent • less school and

work days missed)• Improved emotional

well-being along the continuum of care

1. Potential to receive innovative care by physicians exposed to a larger case mix

2. Receive care from providers competing on quality and evidence-based practices

Exhibit G: Outcomes of the Value-Based Competition Plan on Patient Value

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Exhibit H: Calculation of Bundled Payment for a

Specific Treatment

60%

10%

30%

100%

Payment Hospital Physician Bonus= + +

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ReferencesAlternative Quality Contract (AQC) Blue Cross Blue Shield of Massachusetts. (2010). Blue Cross Blue Shield of Massachusetts The Alternative QUALITY Contract. Retrieved from:

http://www.massmed.org/AM/Template.cfm?Section=Register&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=28047

Children's Hospital Boston Joins the Alternative Quality Contract (2012). Blue Cross Blue Shield of Massachusetts. Retrieved from: http://www.bluecrossma.com/visitor/newsroom/press-releases/2012/2012-01-24.html

Hennrikus. W., Waters. P., Bae. D.,Virk.S., and Shah. A. (2012). Inside the Value Revolution at

Children’s Hospital Boston: Time-Driven Activity-Based Costing in Orthopaedic Surgery. The Harvard Orthopaedic Journal. Vol.14

Massachusetts Payment Reform Model: Results and Lessons, Massachusetts. Retrieved from: http://www.bluecrossma.com/visitor/pdf/aqc-results-white-paper.pd

Massachusetts Medical Society (2009) Overview of Alternative Payment Models. Retrieved from: http://www.massmed.org/AM/Template.cfm?Section=Register&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=28047

Song. Z., Safran. D., Landon.B., Day. M., and Chernew. M. (2012). The 'Alternative Quality Contract,' Based on a Global Budget, Lowered Medical Spending and Improved Quality. Health Affairs. Retrieved from: http://mobile.commonwealthfund.org/Publications/In-the-Literature/2012/Jul/The-Alternative-Quality-Contract.aspx

Weisman. R. (2012). Children’s, Blue Cross deal curbs payments. The Boston Globe. Retrieved from: http://www.bostonglobe.com/business/2012/01/24/children-hospital-boston-won-get-payment-increase-from-blue-cross-this-year/mraRWoC99jqOI5suyQ8IZI/story.html

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References Bundled Payment Bebinger.M. (January 24, 2012) Children’s Hospital Signs On To Global Payment Strategy Common

Health Reform and Reality. Retrieved from: http://commonhealth.wbur.org/2012/01/childrens-hospital-signs-on-to-global-payment-strategy Global Payment Case Study. Retrieved from: http://www.nbch.org/BCBSMA_Case_Study

Spoerl. B., (May 01, 2012). Massachusetts to Take Up Global Payment Legislation in the Coming Weeks. Retrieved from:http://www.beckershospitalreview.com/racs-/-icd-9-/-icd-10/massachusetts-to-take-up-global-payment-legislation-in-the-coming-weeks.html

Overland. D. (2012). Harvard Pilgrim reaches global payment deal with Partners HealthCare. FierceHealthPayer. Retrieved from: http://www.fiercehealthpayer.com/story/harvard-pilgrim-reaches-global-payment-deal-partners-healthcare/2012-10-25

Massachusetts Law Reform Controlling Health Care Costs in Massachusetts with a Global Spending Target (2012). The journal of the American medical association. 308, (12). Retrieved from:

http://jama.jamanetwork.com/article.aspx?articleid=1352960 – Galewitz. P. (2009). Can 'bundled' payments help slash health costs? Kaiser Health News Retrieved

from: http://usatoday30.usatoday.com/news/health/2009-10-25-bundle-payments_N.htm Glass. K., Pieper. L. , & Berlin. M. (1999). Incentive-Based Physician Compensation Models. J

Ambulatory Care Manage, 22(3), 36–46. Retrieved from: http://www.aspenpublishers.com/books/KongstvedtOLD/Readings/Chapter%2007/JACM%2022-3.p36-46.pdf

GOODNOUGH and Sack (2011). Massachusetts Tries to Rein In Its Health Costs. The New York Times. Retrieved from: http://www.nytimes.com/2011/10/18/us/massachusetts-tries-to-rein-in-its-health-care-cost.html?pagewanted=all&_r=0

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References Physician Bonus Model Formulas Health Affairs Blog (August 13th, 2012) The Release of Massachusetts Health Reform 2.0.

Retrieved from: http://healthaffairs.org/blog/2012/08/13/the-release-of-massachusetts-health-reform-2-0/

Herman. B. (April 03, 2012). Major Lessons from CMS' Bundled Payment ACE Demonstration. Retrieved from: http://www.beckershospitalreview.com/hospital-physician-relationships/2-major-lessons-from-cms-bundled-payment-ace-demonstration.html

Patel. P., (November 01, 2012) Successfully Implementing Bundled Payment Models. Retrieved from:http://www.hhnmag.com/hhnmag/HHNDaily/HHNDailyDisplay.dhtml?id=1250004871  

  SCAMPS Coakley. M., (2011). Examination of Health Care Cost Trends and Cost Drivers. Massachusetts

Attorney. Retrieved from: http://www.mass.gov/ago/docs/healthcare/2011-hcctd.pdf Rathod. R., Farias. M., Friedman. K., Graham. D., Fulton. D., Newburger. J., Colan. S., & Lock. J.

(2010) A Novel Approach to Gathering and Acting on Relevant Clinical. Congenit Heart Dis. 2010; 5: 343–353

SEVERITY OF ILLNESS  Severity of Illness with DRGs: Impact on Prospective Payment AHA RESEARCH SYNTHESIS REPORT Retrieved from: http://

www.ncbi.nlm.nih.gov/pmc/articles/PMC1646367/pdf/amjph00286-0081.pdf