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Ann Thorac Surg 1995;60:1486-1489
© 1995 The Society of Thoracic Surgeons
Cardiovascular Care Providers Inc, Houston, Texas
Abstract
In 1984 physicians at the Texas Heart Institute developed Cardiovascular Care Providers Inc, the first packaged-pricing plan for cardiovascular surgery. Under this arrangement, all services, including physician and hospital charges, are covered by a global payment package (bundled service). The resulting flat fee is lower than the sum of the individual charges. Since November 1984 the plan has been offered to the non-Medicare (less than 65 years old) population through contracts with self-insured corporations, prepaid health plans, union trusts, and foreign governments. In 1993 it was extended to Medicare patients who require coronary artery bypass grafting. Our experience has shown the plan lowers cost, increases patient access, allows payers to forecast their expenses, and streamlines the billing process, while maintaining a high quality of care and enabling patients to choose their own providers. Our success with this approach is attributed not only to the plan's simplicity, but also to the fact that it is physician directed and organ specific, involving many related specialties. Equally important keys to success include our hospital's large patient population and extensive database. Similar packaged-pricing plans have been adopted by several other cardiovascular centers. The approach is now being evaluated by Medicare in 6 other hospitals nationwide. With time, this approach is likely to become an increasingly popular reimbursement option.
Healthcare financing is one of the most difficult immediate challenges faced by our society. The difficulty is not so much a scarcity of resources as a lack of workable methods for underwriting and delivering available resources in an equitable manner. In 1989 healthcare accounted for 11.1% of the United States' gross national product, or about 12 cents out of every dollar [1]. This unprecedented expenditure reflects not only the effects of inflation and an aging population, but also an expanded use of medical services, particularly sophisticated diagnostic and surgical techniques. According to a recent survey of United States hospitals, ischemic heart disease is the most expensive major disorder to diagnose and treat. Three other cardiovascular disorders—cerebrovascular disease, acute myocardial infarction, and congestive heart failure—rank third, sixth, and seventh, respectively [2]. Because 79% of all open heart procedures involve coronary artery bypass grafting [3], this operation accounts for a large share of the cost of treatment.
A pioneering facility for the treatment of cardiovascular diseases, the Texas Heart Institute (THI) was established in 1962. Since that time, it has attracted patients from Texas, the United States, and countries throughout the world. By the early 1980s, THI surgeons had performed 80,000 open heart operations, 5,000 of which were done within a single year. These procedures involved many surgical breakthroughs. In March 1994 THI's founder and surgeon-in-chief, Denton A. Cooley, MD, stated [4]:
Of the many ``firsts'' with which I have been involved at the Texas Heart Institute, including the first successful human heart transplant in the United States and the first total artificial heart transplant in the world, the achievement that may have the greatest impact on healthcare did not occur in the operating room or in the research laboratory. It happened on a piece of paper 10 years ago when we created the first packaged-pricing plan for cardiovascular surgical procedures.
This plan, called Cardiovascular Care Providers Inc (CVCP), incorporated the concepts of bundled services, shared risk, and single payment, thereby embodying a radical new approach to healthcare delivery.
Origin of the Plan
The CVCP plan falls within the general category of managed care systems. The term managed care has come to denote all alternative healthcare delivery systems that have expanded beyond health maintenance organizations and traditional prepaid health plans. In its broadest sense, managed care refers to a wide range of use and reimbursement strategies that ensure the quality of healthcare while limiting its cost. Managed care systems coordinate all aspects of healthcare, including the site and extent of treatment, number of people treated, and cost of each service.
By 1984 managed care provider networks had become extremely popular, and THI physicians were being inundated with requests to participate in such arrangements. At that time, the preferred method of payment at our institution was fee-for-service. However, that same year Tenneco Inc, a large, self-insured, Houston-based conglomerate, approached THI's founder and surgeon-in-chief, Denton A. Cooley, MD, about the possibility of providing cardiovascular care for its employees. The company had discovered that 60% of its insurance benefit claims, including those involving cardiovascular procedures, were being used by only 5% of its employees. In comparing claims paid and patient outcome, the company had found that THI provided the highest quality of cardiovascular care at the most attractive rates.
Meanwhile, CIGNA, a large national managed care company, recognized that our program was performing more open heart operations than any other single facility in the world. CIGNA asked THI whether they could institute a flat-fee arrangement, through which all costs, including physician and hospital charges, would be covered by a global payment package (bundled service).
Creation and Implementation of the Plan
In response to these requests, Cooley established an organ-specific, all-inclusive payment package covering 16 selected cardiovascular surgical procedures. This plan primarily resulted from the sagacity and foresight of Cooley, who was its original developer and financial backer. Cooley's colleague, Arthur Keats, MD, was instrumental in determining whether this program would be feasible for physicians. The plan was also made possible because of THI's extensive database. At THI, Cooley had always insisted that all aspects of patient care would be tracked, including diagnosis, surgical procedure, anesthetic regimen, short- and long-term postoperative results, and personal demographic information. This database is probably the largest collection of cardiovascular surgery data in existence.
Analysis of the Patient Population
Development of a flat-fee plan necessitated careful analysis of the population to be covered. By facilitating patient outcome studies, THI's database played a major role in quantitating the degree of risk. It provided the criteria necessary for sound managerial decision making, while allowing flexibility with respect to fluctuations in severity of illness.
The clinical outcomes database of adults with acquired heart disease revealed three general categories of high-volume cardiovascular procedures with tangible beginning and ending points: coronary artery bypass operations, aortic and mitral valve replacements, and peripheral vascular operations. These procedures were further broken down into 16 specific operations. Analysis of hospital charges (St. Luke's Episcopal Hospital) and length of stay for each procedure revealed that, whereas most cases clustered around a central mean, two special subgroups existed: (1) patients with very high hospital charges and extended lengths of stay (greater than 15 days), usually related to a postoperative complication, and (2) high-risk patients with moderate-to-high hospital charges and short lengths of stay (1 to 2 days). These patients died despite maximal intensive care. Typically, they underwent a technically successful operation, but died either in the operating room or shortly thereafter.
Although relatively small, these subgroups accounted for a significant increase in resource utilization and hospital charges. Unfortunately, there was no way of predicting which patients would fall into either of these categories. The concept of shared risk evolved as a means of dealing with this problem. In establishing a schedule of hospital charges, CVCP's planners calculated the maximum percentage of patients that could be covered at a reasonable cost and decided to include all of subgroup 2 within this cohort. By establishing standard length-of-stay requirements equal to the 95th percentile for each specific surgical treatment, the planners excluded subgroup 1, whose charges would be reimbursed on a per-occurrence basis.
Once the hospital charges had been established, professional fees for those physicians necessary for each specific surgical procedure were added to establish appropriate base rates. With respect to subgroups 1 and 2, the payer would be charged for all professional time not devoted to routine, unremarkable operations and for all hospital charges exceeding the stated length of stay. To facilitate preoperative diagnosis, standardized diagnostic tests and appropriate optional services were established for each major disease category. Unfortunately, the extreme diversity among patients has made it difficult to adhere to such standardization.
Implementation of the Plan
Cardiovascular Care Providers Inc was created to coordinate all aspects of the program. Arrangements with payers were covered by a single, signed contract. Eligible patients contacted the administrative office, which verified coverage and then set up a provider-patient appointment. Patients were seen in the physician's office, at the hospital, or in one of several outpatient clinics. In the event a subscriber was admitted to the hospital on an emergency basis, a brief grace period was allowed for verifying coverage. If operation was indicated, the diagnostic work was included in the predetermined fee. Whenever possible, physicians avoided duplicating previous diagnostic studies. When the patient was released from the hospital, the administrative office coordinated all applicable charges, including facility fees, hospitalization costs, and professional fees for each episode of care, and submitted them to the payer in a predetermined, flat-fee summary fashion. In all cases, this flat fee was lower than the sum of the individual charges. Once received by the administrative office, payment was divided among the providers according to the predetermined agreement.
In early 1985 CVCP sought the advice of the Texas State Insurance Commission because of the risk-bearing nature of this approach. The commission identified two problems: the Corporate Practice of Medicine Act prohibits the provision of patient care except by a licensed physician or a physician-owned entity; and by determining a set length of stay and contracting to provide hospital services for a defined amount, the subsidiary was assuming risk. Therefore, it would be subject to the regulations of an insurance company or a health maintenance organization.
To resolve this issue, CVCP was changed to a physician-owned, taxable, not-for-profit organization. The facility (St. Luke's Episcopal Hospital) component portion of each package was separated from the physician portion, and complementary facility and physician contracts were developed. The end result was, rather than having a single contract representing all services associated with a particular episode of care, the payer now had a contract for all facility and ancillary services and a separate contract for all physician services. All of the participating physician and payer contracts were reconfigured to reflect these changes.
Evolution and Current Status
The foregoing single-payment plan has been operational for the non-Medicare (less than 65 years old) population since November 1984 through contracts with self-insured corporations, prepaid health plans, and union trusts. It became apparent early that if this approach had monetary and administrative advantages for commercial patients, those advantages could be transferable to Medicare patients. A proposal to the Health Care Finance Administration requesting support to validate this approach was submitted on November 4, 1985. At that time, the program's combined facility and physician fee for coronary artery bypass under the CVCP plan was $13,800, as contrasted to the average Medicare payment of $24,688. In a 1987 study, the inspector general of the United States Department of Health and Human Services, Richard P. Kusserow, showed that the Health Care Finance Administration could decrease its annual bill for coronary bypass by more than $192 million (13%) if it paid THI's price for the operation [5]. In citing THI as one of the nation's best and least expensive centers performing coronary bypass operations, Kusserow commented on how ironic it was that CVCP participants were able to receive the very best care at such a low price [5]. He suggested that by sending patients and their spouses to THI, Medicare would save money even if it paid for airfare, luxury hotel accommodations, and a rental car.
On January 31, 1991, the Health Care Finance Administration finally endorsed this concept, announcing a study using these principles for Medicare patients who required coronary artery bypass grafting. In June 1993 St. Luke's Episcopal Hospital, with CVCP administering the physician component of the plan, was designated as one of seven United States hospitals to offer packaged pricing for these patients. The study is designed to be completed in 1996. Preliminary indications show a reduction in the length of stay at each of the study sites, as well as a substantial savings to the Health Care Finance Administration. Because these patients account for about 145,000 operations per year [4], packaged pricing will result in untold savings for American taxpayers.
Currently, the CVCP plan is available to more than 800 managed care programs, self-insured businesses, and other health insurance entities worldwide, involving about 1.5 million eligible people. Each year, enrollees make more than 5,000 visits through the plan, thereby generating more than $15 million in professional fees alone. At the same time, the plan results in substantial savings, while maintaining the highest quality of healthcare and simplifying administrative tasks. Specifically, it offers the following advantages:
Keys to the Plan's Success
There are several reasons why CVCP has been so productive:
Implications for the Future
Because patients are using hospitals less, inpatient services tend to be reserved for those with severe illness. These patients are relatively expensive to treat because of the need for more labor, materials, and sophisticated technology. At the same time, hospitals are being subjected to increasingly intense competition, both among themselves and with other providers. The independent hospitals that survive and prosper will be those that can offer lower cost, high-quality services.
For the consumer, the overall goals remain accessibility, quality, and efficiency. The open-ended, cost-based payment mechanisms of the past provided no incentive for the consumer to seek an efficient provider and no reward for the provider to become more efficient. By maximizing both patient access and provider reimbursement, flat-fee arrangements provide incentives for everyone involved. It is to be hoped that in implementing healthcare reform, legislators will acknowledge the value of such arrangements and will make bundled services increasingly available for major diagnoses. For progress to be made in this direction, it will be necessary to devise better data-collection systems to convince skeptical third-party payers that flat-fee plans are cost-effective. Although such plans will never be appropriate for all patients, they are likely to become the reimbursement option of choice in an increasing number of cases.
Acknowledgments
A similar version of this article appeared in the March 1995 issue of the Texas Heart Institute Journal (Tex Heart Inst J 1995;22:72–6).
Footnotes
Presented at Preparing Your Practice for Change: Thoracic Surgery Into the Next Decade, Atlanta, GA, Sep 24–25, 1994.
Address reprint requests to Mr Edmonds, Cardiovascular Care Providers, 6900 Fannin, Suite 650, Houston, TX 77030.
References
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