A Bold Experiment

The shifting face of health care is evident in its most expensive phase: senior and chronic care. The Avamere Family of Companies is pioneering a program that cuts both cost and the time patients spend in its facilities. How could such an experiment pay off? General counsel Larry Lopardo explains.

It seems counterintuitive that an industry would seek to reduce the services its customers consume. Yet that’s exactly where much of the health-care system is headed, largely as a result of the Affordable Care Act. The law is reordering health care from floor to ceiling, and the care provided to seniors on Medicare will be no exception. Reducing the time that patients spend in hospitals and long-term-care facilities—as well as the number of procedures undertaken while in care—is a fundamental way in which the system is dramatically changing.

The intention is not heartless cost-cutting to the detriment of patients. A significant amount of research shows that speedier, longer-lasting recoveries are possible with rational, coordinated care that also eliminates waste. Longer stays in hospitals do not translate to better care; in fact, under some circumstances, they can make patients sicker and introduce complications.

The Avamere Family of Companies, based in Wilsonville, Oregon, is on the vanguard of these changes. The group is among the first wave of providers to participate in the rollout of a program called the Bundled Payments for Care Improvement initiative. In short, the program incentivizes health-care providers to cut costs by various means, including by enabling patients to recover more quickly and spend fewer nights in transitional or skilled-nursing care.

While that may seem counterintuitive, many organizations like Avamere are jumping in to become the first adopters in what is essentially a bold experiment. This doesn’t worry Larry Lopardo, secretary and general counsel for the company. “Quality providers will benefit in this system,” he says. He is confident in Avamere’s years of research that indicate this. “Good medicine can be consistent with lower costs.” This is the ultimate goal: to lower health-care expenditures in the behemoth Medicare system while patients become healthier.

Bundled care incentivizes groups of providers—hospitals, post-acute-care providers such as Avamere, physicians, and other practitioners such as nurse practitioners and therapists—to approach an illness or condition holistically and in coordination, and be compensated according to a single Medicare-determined payment schedule.

One member of the mix of providers, called a convener, manages the patient throughout the course of treatment, working in a unified fashion with all other providers on the “team.”

Lopardo plays a key role in this. These arrangements require contracts between providers; they are all in it together. When a Medicare patient has an acute episode, such as a broken hip or emergency bypass surgery, a diagnosis-related group (DRG) payment schedule establishes a marketplace-adjusted price for that patient’s treatment. If net costs come in below the amount set by Medicare, the providers divide up the savings, which is called “gain sharing.” Conversely, if costs go above the DRG target, those organizations eat the loss in a “loss apportionment.”

About 90 percent of people receiving health care over the age of 65 are on the popular program; when those benefits are depleted, they are enrolled in Medicaid.

One of the quickest ways to go over the target is if the patient has a setback that requires a rehospitalization. A recent report from the Robert Wood Johnson Foundation found that Medicare pays for the one in five elderly patients who return to the hospital within 30 days of leaving from a prior stay, which costs about $26 billion annually.

The Centers for Medicare and Medicaid Services reports that $17 billion of those costs could be saved; causes of rehospitalization are numerous, but they include patients being poorly informed at discharge, noncompliance with medication orders, or lack of necessary follow-up care.

Lopardo says Avamere clinicians and administrators have been working for two decades to cut down on these types of problems and that, in his job, it’s important that he be included in the discussion. “We have spent a lot of time designing systems to prevent rehospitalizations,” he says. In Avamere’s lower-cost settings (home-health care, assisted living, and transitional living), discharged patients can receive appropriate care to put them on the road to improved health.

Lopardo has, over the course of his 16 years at Avamere, helped the company build these capabilities through acquisitions of various types of nonhospital caregiving facilities. The transactions require legal guidance, and so does helping those existing facilities adopt Avamere protocols. “When we buy a facility or a company,” Lopardo explains, “we have to transition them to our standards of compliance with such things as protected health information within the dictates of HIPAA.”

Those acquisitions have built Avamere into a 40-plus-facility organization in four states: Oregon, Washington, Idaho, and Colorado. The family of companies also performs contract therapy in five additional states and home health and hospice in Utah. Size is an advantage in modernizing and economizing, but crossing state lines adds regulatory complexity.

Electronic medical records systems—replacing paper and error-prone handwritten notes and instructions—are critical to making bundled care initiatives work. Digital capabilities are also integral to attracting provider cooperation. “The impact of this is huge,” says Lopardo. “Not all post-acute-care providers have this capability. Our own IT department is several times bigger than it was just a few years ago.”

All of this leads to consolidations in the industry. And while smaller players fall out and larger companies absorb them, Lopardo says there isn’t any danger of antitrust issues—yet.

Other laws and regulations, such as HIPAA, occupy the legal department’s time. This includes the mix of state laws regarding fraud, abuse, and antitrust.

Regarding HIPAA, Avamere has a dedicated staff member who ensures privacy regulations are maintained, even through the challenges of multiple caregivers in the bundled care regime. “HIPAA creates an information privacy culture,” says Lopardo. “It’s part of how we evaluate our partners. They have to get it.” He also mentions qui tam whistle-blower provisions, the spirit of which is important but can lead to frivolous litigation and expensive nuisance settlements.

State laws are trickier, according to Lopardo. “We have very progressive regulators in Oregon,” he says, “but other states take different approaches.” What changes noticeably between states is the extent to which nurse practitioners play a role in patient care, though the laws are fairly consistent in the states where Avamere operates. “There’s a great deal of interest in what nurse practitioners can do in health care,” says Lopardo. “From our perspective, the rest of the country should allow nurse practitioners the broader scope of practice that we have here.”

Lopardo acknowledges that there are reasons for the fears that many have concerning bundle care and health-care reform overall. “We ask, ‘is there a dark side where there will be skimping on care?’ But we crunch the data to see our outcomes,” he says. “Most patients prefer to go home. And our employees say it’s a happier place to work when they are helping people to get better. This is a rational design.”