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Bundled payments healthcare tool finds better deals for employers

Trying to rein in healthcare costs, large self-insured employers are using HR tech tools, such as analytics-based bundled payment software, to forge deals with healthcare providers.

Sach Jain is CEO of Carrum Health, Inc., a San Mateo, Calif.-based vendor of bundled payments healthcare software-as-a-service technology for self-insured employers. In this Q&A, Jain talked with SearchFinancialApplications about the technology and economics of bundled payments, as well as Carrum's approach.

What is bundled payments healthcare in the private sector, and how does it work?

Sach Jain: Bundled payments are arrangements between employers and providers. Employers, as they looked at their health benefit expense, realized that 8% to 10% of their employees make up 40% to 50% of their total health expense, and the costs were continuing to spiral up. The reason the costs were rising so much is [high-cost surgeries]. And surgery, just like anything else in healthcare, is an extremely inefficient market. Take a surgery like joint replacement. An employer can get it at one hospital for $25,000 and at another hospital down the street for $100,000. And there's no correlation with quality. So, employers realized that they had to find a way to manage this big bucket of surgical expense. Employers like Walmart, Boeing and Lowe's decided to use the concept of bundled payments to address this problem. They contracted out for surgeries with hospital systems like the Mayo Clinic and the Cleveland Clinic and got a fixed price for the entire surgery. It brought the cost down, and employees had access to top-quality surgeries. For the hospitals, they could send one single bill, and the bill for that surgery is predetermined and is an agreement between the employer and the hospital. One entity, usually the health system, gets that single payment and distributes payments among all the providers.

Sach Jain, Carrum HealthSach Jain

How fast is the bundled payments healthcare approach expanding in the corporate world?

Jain: This is where the significant momentum is. Very large employers started this arrangement four or five years ago, and they showed that the cost savings are significant, and employees get outcomes and experiences that are significantly better. That brought on a large number of employers who wanted to do similar arrangements -- all self-insured employers.

What lessons did you learn from those early bundled payments healthcare employers about scaling the technology and improving employee communications about benefits?

Jain: These large employers that put these programs in place realized that the level of complexity is massive. For an employer like Walmart to forge a direct link with a provider like the Cleveland Clinic, there are over 200 integration points that need to be streamlined for the arrangement to work. Examples of integration points are stop-loss [insurance]; employee communications; how payments will be collected and adjudicated and made to the provider; [and] what the bundle should be and its price. These messy programs cost from hundreds of thousands to millions of dollars to create from scratch. Large employers, like Walmart and Boeing, could do so, but for the vast majority of employers, even if they were covering 20,000 or 40,000 lives, doing it from scratch is extremely expensive and takes years to get ROI. So, we saw an opportunity to put a technology platform in place that would use analytics and streamline most of these integration points between employers and providers.

For an employer like Walmart to forge a direct link with a provider like the Cleveland Clinic, there are over 200 integration points that need to be streamlined for the arrangement to work.
Sach JainCarrum Health

How does this bundled payments healthcare platform work, and how does it look to the employer?

Jain: The platform is like Kayak [travel website] where different airlines can join to sell their products. In the same fashion, on the Carrum platform, hospitals can join and offer their bundles. On the employer side, we have standard modules in place to integrate with the carrier [and] integrate with the benefits portal. Once they join, they get access to the kind of bundles Walmart put together for hundreds of thousands of dollars. We have created standardization on our platform. All of our bundle definitions are standard. We use the bundle definitions to drive contracting with the providers and offer the package on our platform. We give guidance about the package to both sides to make the market. Also, if an employer has a worksite health clinic or a [health benefits] platform, like Castlight, in place and they want to integrate, we are already integrated with Castlight.

How do the finances of a bundled payments healthcare system work?

Jain: Our model is largely driven by the utilization of the solution. We make the solution available to the employer. As employees use Carrum Health for their surgeries, we send a bill to the employer for that bundle, and that bill includes Carrum's fee. In addition, we charge a … subscription fee to the employer to join. The fee for a bundle is based on what bundle it is.

On your website, you say your bundled payments healthcare technology provides cost savings on a standard knee replacement of 43%, readmissions reductions of 63% and complications cut by 14%. You cite similar numbers for other procedures, including cervical spine fusions, lumbar spine fusions and coronary bypass surgeries. How did you arrive at those numbers?

Jain: We collect a lot of data on each market we're in. To give an example, in the Southern California market, the average price for a joint replacement bundle is around $36,000 for an employer that is using a traditional carrier to manage their health plan. Through Carrum, because of our special arrangement with our providers in Southern California, if an employee uses Carrum, the price is 40% to 50% less.

How are the providers able to do it so much more cheaply?

Jain: The main reason is efficiency in payments. Generally, what happens on the provider side, when an employee comes to them for surgery, they have to start creating all these messy bills -- for the procedure, the implant and so on. Then they send the bill to the carrier. Now, there's a lot of back and forth between the health plan and the hospital. And then they have to collect the patient portion. It takes two to three months before all this is settled, and it costs the provider. Often, they are not able to collect everything, so there's a lot of bad debt. Under our model, none of that exists. The moment surgery is finished, the provider gets the full payment.

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