Carrum Health’s Bundles Breakthrough: Is a Contracting “Ultima Thule” in Sight?

It was great to interview Christopher M. Whaley, Ph.D., a policy research at the Santa Monica, California-based RAND Corporation, this week, regarding a new RAND study of which he was the lead author, and whose results were published in the March issue of Health Affairs.

The key question that Whaley and his colleagues at RAND and at the San Mateo, California-based Carrum Health wanted to answer, was this: can tightly organized direct payment programs designed to guide consumers into choosing the most cost-effective providers, really work? Based on what they uncovered, as articled in their Health Affairs article, “An Employer-Provider Direct Payment Program Is Associated With Lower Episode Costs,” is a resounding yes.

A press release posted by Carrum Health to the company’s website on March 1 applauded the results of the study, stating that, “In a first-of-its-kind study of bundled payments for commercially insured populations, RAND Corporation highlights the significant financial savings that can be achieved through Carrum Health‘s digital Centers of Excellence (COE) platform. The study, published today in Health Affairs, the leading peer-reviewed journal of health policy thought and research, highlighted a more than 45 percent per procedure savings when procedures were performed through Carrum Health. Overall, employers achieved an 11 percent medical cost reduction after implementing Carrum Health across all covered procedures, including those not performed through the Carrum Health benefit. Patients also saved money as cost-sharing payments were waived for the 21 percent of patients who went through the program.”

And of course, Whaley and his colleagues dug into the details in their Health Affairs article, finding essentially, that the program that the Carrum leaders had developed, really worked. As Whaley and his co-authors wrote in Health Affairs, “We examined the impacts on episode cost and patient cost sharing of a program that applies bundled payments for orthopedic and surgical procedures in a commercially insured population. The program we studied negotiates preferred prices for selected providers that cover the procedure and all related care within a thirty-day period after the procedure and waives cost sharing for patients who receive care from these providers. After implementation, episode prices for three selected surgical procedures declined by $4,229, a 10.7 percent relative reduction. Employers captured approximately 85 percent of the savings, or $3,582 per episode (a 9.5 percent relative decrease), and patient cost-sharing payments decreased by $498 per episode (a 27.7 percent relative decrease).”

And, very interestingly, they noted that, “In response to variations in episode cost and quality, the Centers for Medicare and Medicaid Services (CMS) has experimented with two separate bundled payment programs for joint replacement surgeries: the voluntary Bundled Payments for Care Improvement (BPCI) initiative and the mandatory Comprehensive Care for Joint Replacement (CJR) model. Recent evidence from each program shows reductions in Medicare per episode spending, especially with respect to postacute care services. However, after provider bonus payments are factored in, the net savings to the Medicare program are relatively small.”

So, why has the Carrum Health program worked, when the BPCI and CJR models have reaped far more modest results? Here are a few details: “Patients who receive care from participating providers have no cost sharing (for example, copayments, coinsurance, or deductibles),” the authors wrote, referring to the Carrum Health program. “Further, patients are protected against balance bills for out-of-network service.” There are additional details referenced in the article that add further depth to the narrative. Importantly, under the program, “Approximately 30 percent of referred patients were recommended for conservative treatment instead of surgery (for example, physical therapy), and most of those patients followed the recommendation and pursued nonsurgical care. Further analysis is required to quantify how many of these patients would have gone forward with surgery had it not been for their interaction with the program. Participating providers are reimbursed for evaluating patients for appropriateness through a separate assessment bundle if the provider recommends nonsurgical treatment.”

And, here’s a key element: “High and variable prices among the commercially insured population create a potential opportunity for savings by shifting patient demand from high-price to lower-price providers of similarly high quality,” the researchers wrote. “Purchasers are now looking to innovative approaches to encourage their enrollees to receive care from lower-price providers. This follows efforts by the Medicare program to adopt bundled payment programs for high-cost surgical procedures and thereby hold providers accountable for controlling both surgical and postoperative costs. Commercially insured direct payment models that leverage bundled payment structures can likewise harness the same underlying provider incentive improvements and may even further reduce spending as a result of the wide degree of price variation among commercially insured populations at baseline.”

Whaley himself amplified what he and his fellow researchers had found, in studying the Carrum Health program in depth. As he explained it to me, “[T]e question is, what can we do to get patients to go to lower-cost providers? And some of the programs don’t work well—just putting employees into high-deductible plans and giving them information about pricing. It was interesting to look at a program that benefits employer-purchasers but also benefits patients because they get information on high-quality, lower-cost providers. And it’s also beneficial for providers; and that’s an under-appreciated aspect. If you’re a provider and rank high, you get access to more patients. So providers get access to patients with less hassle.”

And, here’s an essential learning from the Carrum Health program: “[O]ne of the key learnings from this program and others that have worked out well, is to keep things simple,” Whaley told me. “Part of the disappointment coming out of the high-deductible plans is that they’re not simple; in fact, they add to consumers’ stress. For a patient, it’s a lot easier to be given the incentive to go to a specific provider. It’s like when you’re driving down the highway, and you’re trying to adjust the radio volume and the heat or air conditioning, while driving.”

I think that the findings from this study will have proven to be important, with very big implications for the future of programs created by employer-purchasers to guide (and frankly, coerce) their employees to make choices of providers that can benefit everyone. The key, clearly, is a combination of things: keep the information and process as simple as humanly possible; and make sure to align all the incentives among all the participating stakeholders. In the Carrum Health program, providers have very strong incentives to deliver care at reasonable prices, as they will be directly rewarded for having negotiated highly cost-effective prices with strong outcomes, by the employer-purchasers, through Carrum Health, steering the employee-patients, to them. Success all around.

Further, this program shows what not to do. It seems very clear that simply giving broad, general information to employees, and especially giving them broad, general information in the context of high-deductible health plans, which disincent them from seeking timely, ultimately cost-effective care, just doesn’t work. And providers themselves need to be strongly incented to adjust their prices in ways that will be directly rewarded through the steering of employees-consumers-patients to those who do the best under the terms of the program. And that is absolutely essential here.

So this Carrum Health program does potentially seem to be a game-changer in this important area. I hope that, as the Carrum Health people continue to expand the range of services involved, and also expand their contracts to involve more employer-purchasers, word will get out. And that will be very good.

Will all programs reach the level of savings reached in this program, around this set of procedures, and with this group of stakeholders involved? Perhaps not. But this Carrum Health program looks to become a terrific model for future programs of a similar type. And it’s one of those relatively rare cases in which one can see how a program’s incentives and processes can finally create a set of bridges between cost-effectiveness (with appropriate outcomes) and the rewarding of cost-effective providers with increased volume in these bundled-payment programs, with the element of consumer selection as a key element in the whole process.

We’ve heard over and over in healthcare that it’s too difficult to create a value chain in this way; and yet the Carrum Health people have now done it, and in so doing, have created a map for others to follow here. In other words, we’re no longer in uncharted territory now. Is Ultima Thule within sight? Stay tuned.