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Winter 2012–13 • Vol. 36 .No. 4 | 71

G E N E R AT IO N S – Journal of the American Society on Aging

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Reducing preventable hospital re-admissions is an important component of the Centers for Medicare & Medicaid Services (CMS) initiative to lower the overall cost of healthcare delivery. A core piece of the CMS strategy involves financially incentivizing providers and hospitals. Although this approach seems reason- able to policy makers, healthcare consumers, and American taxpayers, the business case for providing care transition services to Medicare beneficiaries and other patients is less apparent.

This article delineates multiple costs associ- ated with preventable re-admissions; identifies patient, hospital, and community characteristics

to consider when formulating a business model of care transition services; and proposes guidelines for forming a sustainable care transitions pro- gram. Our discussion of the business case for care transitions is influenced by the larger healthcare goals of improving care delivery, reducing costs, and implementing the Affordable Care Act (ACA).

To better focus on issues relevant to the develop- ment of a business plan, we limit our discussion to Medicare beneficiaries.

Identifying the Multiple Costs of Preventable Re-Admissions Preventable re-admissions costs have a consid- erable impact on Medicare expenses, hospital budgets, and patient care.

The cost to Medicare According to the March 2012 Medicare Baseline report, in 2011 Medicare paid $546.5 billion in benefits, net of recoveries (Congressional Budget

Office, 2012). The largest expenditure category was hospital inpatient care, at $135.3 billion (25 percent of total costs). In the traditional Medicare fee-for-ser- vice (FFS) system, these funds were paid to hospitals based upon patients’

hospital stays. The report used clinical docu- mentation to determine payment category or diagnosis-related group (DRG) for the length of stay (i.e., prospective payment system). The DRG is modified by several factors (including severity of illness), resulting in a total payment from the CMS to the hospital. As a general rule, in the

By Anthony Perry and Alan B. Stevens

How Do We Make the Business Case for Transitions?

Making care transitions profitable is a complicated business that requires intimate knowledge of population base and the ability to strike a balance between reducing costs and achieving quality.

Hospitals should not overlook the impact of preventable re-admissions on community trust and consumer loyalty.

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traditional FFS system, thirty-day re-admissions receive full and separate payment from the CMS. Jencks and colleagues (2009) reported that the national Medicare FFS thirty-day re-admission rate was 19.6 percent.

In one report to Congress, which assumed a thirty-day re-admission rate of 18 percent, the annual cost to Medicare from re-admissions was $15 billion. Of that, about $12 billion was thought to be from potentially preventable re-admissions (Medicare Payment Advisory Commission [MedPAC], 2008).

The cost to patients and families While there is consensus that preventable re-admissions reflect poorly on the quality of patient care, it is still important to articulate the potential negative financial and emotional consequences to the patient and family. The most obvious financial costs to patients are deductibles and co-payments. One report found

that those ages 65 and older spent an average of $4,888 per capita annually out of pocket for deductibles, co-payments, premiums, and other healthcare expenses not covered by insurance (National Center for Policy Analysis, 2009). It is important to note that co-payments vary de- pending on beneficiaries’ plans, and patients are generally protected from deductible payments for rapid re-admissions (United HealthCare Services, 2012).

A patient’s family caregivers are also affected negatively when an older family member is hospitalized. When this happens— whether the event is planned or unplanned— family caregivers commonly report increased burdens, stress, and the need for hands-on care (e.g., managing multiple medications). One survey found that caregivers for a person who had been hospitalized in the past year were about twice as likely as those who were caring for a non-hospitalized person to be bathing the

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care recipient or managing incontinence, and about three times more likely to be helping with dressing, feeding, getting in and out of bed, and walking across the room (United Hospital Fund, 2000). While these reports do not distinguish between hospitalizations and rapid re-admissions, one can assume that caregivers experience similar stressors regard- less of how the hospitalization is labeled.

Negative consequences to hospitals As part of the ACA and the Hospital Readmis- sions Reduction Program (HRRP), the CMS expects to reduce base payments to hospitals paid under the inpatient prospective payment system. This reduction, which started October 2012, is based on excess re-admissions for cases of acute myocardial infarction, heart failure, and pneumonia. The CMS defines excess re-admis- sions as a measure of a hospital’s re-admission

performance compared to the national average for each applicable condition, identified as the excess re-admission ratio. Other conditions and procedures will be added in fiscal year 2015. These include chronic obstructive pulmonary disease, coronary artery bypass graft, percu- taneous transluminal coronary angioplasty, and other vascular conditions.

MedPAC identified the diagnoses and procedures listed above as a subset of conditions that account for almost 30 percent of Medicare’s spending on re-admissions occurring within two weeks of discharge (MedPAC, 2007). The re-admission ratio will be risk-adjusted for patient demographic characteristics, comorbidi- ties, and frailty, a methodology endorsed by the National Quality Forum. The re-admission ratio will be based on three years of discharge data for at least twenty-five cases. Exemptions

include hospitals with fewer than twenty-five cases, re-admissions for reasons unrelated to the condition of interest, planned re-admissions, and transfers to another hospital.

Internal factors also determine the finan- cial impact of preventable re-admissions on hospitals. Healthcare organizations are facing increasing pressure to provide timely care in the most efficient locations, thus driving healthcare systems to allocate resources to best serve patient needs and improve the overall health of the population served. Reducing preventable re-admissions aligns with these goals in several ways.

Primarily, reducing re-admissions preserves hospital beds for those most in need, which is especially important in healthcare markets with a high demand for hospital beds. In such mar- kets, hospital beds will remain available and can be used to serve high-acuity patients with only a marginal increase in clinical and allied profes- sional support costs. This strategy allows hospitals to optimize productive staffing ratios and economies of scale. In some cases, this may also mean that the hospital’s payer mix becomes more diverse. When beds become available, it increases the opportunity to admit new acute patients with other pay sources, such as com- mercial insurance policies.

Non-governmental payers are more likely to have a more favorable payment structure than Medicare programs, which means an improved provider margin on fixed and variable operating costs. The same argument works for optimal use of emergency departments, which in many markets are operating at or beyond capacity, resulting in patients being held in the emergency department rather than being transferred to a traditional inpatient bed. Commonly termed “boarding,” this is not thought to be optimal care for patients (Committee on the Future of Emergency Care in the United States Health System, 2006). An alternative is adding bed capacity and emergency department services in the healthcare market.

The business case for care transitions depends upon the organization’s larger Medicare strategy.

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Lastly, hospitals should not overlook the impact of preventable re-admissions on commu- nity trust and consumer loyalty. Hospital re- admission rates for Medicare patients are publicly reported at CMS’s “Hospital Compare” website (www.hospitalcompare.hhs.gov). Such transparency is leading to greater public interest.

Dynamics at the Hospital Level So far we have suggested that a generic busi- ness model is ill-advised, if not impossible to construct. Rather, there are organizational characteristics, as well as national and local influences to consider when building a business model. Vision, mission, and values matter in healthcare organizations, necessitating an individualized approach to business models. Some common themes across organizations need to be considered when creating a care transitions business model that considers margin and mission.

What drives profitability? Hospitals and healthcare systems embrace a variety of care delivery and payment structures. Models that emphasize population health and the active management of a defined group of patients (e.g., accountable care organizations) are more likely to find value in care transitions services. These models reimburse for care delivery in ways that are distinctly different than traditional FFS Medicare or risk-free health plan contracting. Understanding the basic models that drive an organization and how other drivers interface with Medicare payment constructs are fundamental to build- ing a business case for care transitions.

For example, organizations that carry risk in a Medicare Advantage program are likely to be heavily vested in the total cost of patient care, and are already actively working to limit hospi- talizations and preventable re-admissions. In such organizations, the cost of a care transition program can be offset by the total dollars saved through a reduction in re-admissions. The form-

ula is less clear in FFS Medicare (which typically has not had financial incentives for hospitals to improve the quality of care transitions and reduce avoidable re-admissions), but this model is changing.

The New Normal for FFS Medicare The advent of penalties for excessively high re-admissions (i.e., HRRP) has brought a new dimension to the business case for care transi- tions. Moreover, with the launch of programs such as Partnership for Patients and the Health Care Innovation Challenge, organizations are increasingly encouraged to engage in quality initiatives that include care transition services. Fiscal year 2013 brings even more new elements to the traditional FFS system, such as the Hospital Value-based Purchasing (VBP) program and the Payment Adjustment for Hospital Acquired Conditions Program expected in fiscal year 2015.

The HRRP initially places 1 percent of the inpatient Medicare payment at risk for certain diagnoses, but both the number of diagnoses and the total amount at risk will grow (up to 3 per- cent). Meanwhile, the VBP program will start with 1 percent of the payment at risk for process and satisfaction metrics. With knowledge of the organization’s annual Medicare payment for inpatient services, administrators can calculate the amount of payments at risk from penalties and enter this data into the business case. Clearly, these mandatory programs create new incentives and a “new normal” for creating a business case within the traditional FFS model.

Healthcare Reform Beyond FFS In addition to the mandatory programs discussed, voluntary programs for 2012 and 2013 allow organizations to assume further accountability for the total cost of care. The Bundled Payment for Care Improvement initiative, the Medicare shared savings program, and the Pioneer Ac- countable Care Organizations Model are all evolutions of accountability in the traditional FFS system. Organizations entering into these

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programs will be transitioning FFS recipients into a model with heightened accountability on the provider side, making care transition services even more attractive to hospitals and clinicians.

How does the organization look at Medicare? As expected, the business case for care transitions is dependent upon the organization’s larger Medicare strategy. The Medicare strategy spec- trum ranges from organizations for which Medicare-based services require subsidization from more profitable lines of business to organiza- tions in which Medicare is the lion’s share of organizational profitability. Fundamentally, this determines if the care transition business case is based on market growth or cost-effectiveness in care delivery. In addition, organizations primarily focused on FFS will need models to include a response to the “new normal” in payments that considers re-admission rates or a more aggressive approach of bundled payment and shared savings.

We have intentionally limited the scope of this article to Medicare; however, the business case for care transitions is not limited to Medicare. While much attention is being paid to Medicare and healthcare reform efforts, these conversa- tions can also be applied to other settings beyond managed care–capitated systems. Organizations may also contract with private insurers around certain incentives such as quality metrics, re-admissions, or patient satisfaction.

Variables Shaping the Local Care Transitions Business Model We have discussed federal policy and general characteristics we believe to be important in shaping care transitions business cases. In this section, we delineate additional variables critical to the business, including patient characteris- tics, hospital practices, implementation demands

of the evidence-based care transitions programs, and a role for community-based organizations in partnering with hospitals to reduce preventable re-admissions.

Patient characteristics Disease condition is important in preventing re-admissions, as suggested by the CMS’s focus on acute myocardial infarction, heart failure, and pneumonia. Additional evidence suggests that social determinants of health are also important to consider in care transition programs. For example, it has been shown that such factors as “living alone,” “unmet functional needs,” “lacking self-management skills,” and “limited education” can increase the risk of early re-admission (Arbaje et al., 2008).

Patient characteristics vary across hospitals, and each community has unique determinants of health. Thus, an examination of patient charac- teristics associated with re-admissions on the

local level can provide important data for the business model. For example, length of hospital stay may be more predictive of re-admission than any specific

disease diagnosis. Important information can be obtained from an analysis of the hospital’s claims data, chart reviews, and interviews with key providers such as case managers and patient interviewers. Many hospitals find that a struc- tured root cause analysis provides help in design- ing a care transition program and can form the basis of the business plan.

Hospital practices In general, hospitals have responded aggressively to reduce preventable re-admissions, resulting in a wide range of initiatives across hospitals. The most common fall into five categories: greater sensitivity to health literacy in discharge plan- ning documents; enhanced pharmacy review of high-risk medications and patients thought to be at high risk for re-admission; team-based quality improvement programs for high-risk diseases,

In general, hospitals have responded aggressively to reduce preventable re-admissions.

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such as congestive heart failure; partnerships with primary care providers to help with scheduling follow-up patient appointments prior to discharge; and structured and tested care transition programs, such as the Care Transitions Intervention and Project RED.

The design and implementation of these programs typically require coordinating administrators, medical directors, clinicians, case managers, and quality improvement specialists. This suggests that a business case should review current practices to reduce preventable re-admissions; leverage the value of current programming; highlight the value in a team approach that coordinates care transitions within the hospital; and, importantly, describe the orchestration of unified and complementary services to patients and families.

Implementation demands of evidence-based care transition programs It is essential for any business plan to use knowledge abstracted from the literature on care transition programs. While this article does not review the literature, we do suggest paying atten- tion to the following three key points extracted from the literature to inform a business plan: • There is no single approach to supporting

high-quality care transitions; multiple ap- proaches have demonstrated success in reducing preventable re-admissions.

• A detailed review of evidence-based pro- grams will yield key characteristics of what it will take to put a care transitions program into place. Workforce demands of the care transition program (from nurses, social workers, pharmacists, and other resources required for implementation) often deter- mine feasibility and cost. Methods of reaching out to patients after discharge also vary, with both home visits and telephone interventions demonstrating positive results.

• Consider the patient population from which the evidence was established and how it matches the local populations or target popu-

lation—is it for community-based people or nursing home residents? Typically, these populations require different approaches to care transitions. Transitional care programs can also be disease-specific.

Multiple factors need to be considered when determining the most appropriate care transi- tion program for a hospital and the business plan variables. Essentially, the business model becomes dependent upon the fit between the characteristics of the care transition program and of the hospital and its patients.

A role for community-based organizations Preventable re-admissions are heavily influ- enced by demands placed upon the patient after leaving the hospital (e.g., adherence to medica- tion recommendations made at discharge). The CMS has acknowledged the role of community- based organizations as partners to hospitals and patients in efforts to reduce preventable re- admissions. The community-based care transi- tions program (CCTP), created by Section 3026 of the ACA, provides $500 million over five years to test evidence-based models for improving care transitions for high-risk Medicare benefi- ciaries. This program is a key strategy in meeting the Partnership for Patients re-admission aim of realizing a 20 percent reduction in all-cause, all-payer re-admissions by 2013. Eligible organi- zations include high−re-admission hospitals partnering with community-based organizations (CBO) or CBOs partnering with community hospitals to provide care transition services.

Through community-hospital partnerships, patients have the necessary community support to effectively transition out of the hospital. This approach to engaging the community has direct and indirect impacts on the business model. The CCTP provides a direct financial incentive to work with community-based organizations because it provides CMS payments in support of care transition programs. There are, how- ever, other benefits. Partnerships can also provide patient access to supportive commu-

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nity health programs. Too often, such commu- nity services provided by organizations outside the traditional medical model become isolated from and are seen as distinct from medically provided services. Effective care transition programs can be used to blend the traditional medical and social models of care into a seam- less, patient-centered approach.

Achieving Quality and Reducing Cost: A Delicate Balance The CMS is leading the healthcare industry in a direction in which it hopes to combine quality improvements with expense reductions; these efforts will have a dramatic effect on healthcare as we move forward. This is directly played out in the care transitions field, where the delicate

balance between these goals is clearly visible. Building a business case for a successful care transition program requires knowledge of the financial pressures of healthcare reform driving every organization; the organization and the size, scope, and prominence of its Medicare busi- ness, as well as the alignment of mission and strategy; and the patient population and commu- nity. Knowledge of each of these three areas is essential to building a case for a care transition program and for making the program a success.

Anthony Perry, M.D., is director of the Johnston R. Bowman Health Center at Rush University Medical Center in Chicago, Illinois. Alan B. Stevens, Ph.D., is director of the Center for Applied Health Research, Scott and White Healthcare, Temple, Texas.

References Arbaje, A. I., et al. 2008. “Post- discharge Environmental and Socioeconomic Factors and the Likelihood of Early Hospital Readmission Among Community- Dwelling Medicare Beneficiaries.” The Gerontologist 48(4): 495–504.

Committee on the Future of Emergency Care in the United States Health System. 2006. Hospital-Based Emergency Care: At the Breaking Point, in the Future of Emergency Care in the United States Health System. Washington, DC: Institute of Medicine of the National Academies.

Congressional Budget Office. 2012. Medicare March 2012 Baseline. www.cbo.gov/publication/43060. Retrieved September 9, 2012.

Jencks, S. F., Williams, M. V., and Coleman, E. A. 2009. “Rehospital- izations Among Patients in the Medicare Fee-for-Service Pro- gram.” The New England Journal of Medicine 360(14): 1418–28.

Medicare Payment Advisory Commission (MedPAC). 2007. “Payment Policy for Inpatient Readmission.” In Report to the Congress: Promoting Greater Efficiency in Medicare. www. medpac.gov/documents/jun07_ entirereport.pdf. Retrieved September 9, 2012.

MedPAC. 2008. Report to the Congress: Reforming the Delivery System. www.medpac.gov/ documents/jun08_entirereport. pdf. Retrieved September 9, 2012.

National Center for Policy Analysis. 2009. Health Care Costs During Retirement. www.ncpa.org/pub/ ba660. Retrieved September 9, 2012.

United HealthCare Services. 2012. “Show Me Guide: Medicare Made Clear.” www.uhc.com/live/uhc_ com/Assets/Documents/Medicare_ Made_Clear.pdf. Retrieved Septem- ber 9, 2012.

United Hospital Fund. 2000. A Survey of Family Caregivers in New York City: Findings and Implications for the Healthcare System. New York: United Hospital Fund.

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