NR 552 Week 7 Budget Impact Projection Example

Budget Impact Projection: A Regional Medicare Advantage Plan Paying for Nurse-Led Heart Failure Transitional Care Over Three Years, Two Worlds Compared Year by Year and a Scenario in Which the Program Costs Money

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College of Nursing, Chamberlain University

NR 552: Economics of Healthcare Policy

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Month Day, Year

Budget Impact Projection: A Regional Medicare Advantage Plan Paying for Nurse-Led Heart Failure Transitional Care Over Three Years, Two Worlds Compared Year by Year and a Scenario in Which the Program Costs Money

Whose Budget, Over How Long

This projection is written for the regional Medicare Advantage plan that insures about 58% of the heart failure patients our hospital discharges home. The plan pays for its members' hospital care, including readmissions, and would pay our hospital a per-patient fee for enrolling members in a 30-day nurse-led transitional care program. The plan's planning window is three years, matching its contract cycle with our hospital. Affordability is the plan's question: whether its medical spending on these members rises or falls if it pays for the program. Good practice for budget impact analysis calls for stating the budget holder, the time horizon and the eligible population explicitly, and for reporting results year by year rather than as a single discounted figure (Sullivan et al., 2014).

The Eligible Population, Bounded

Eligible members are plan members aged 18 or older discharged home, not to a nursing facility or hospice, after a stay whose principal diagnosis was heart failure at our hospital. Based on the past two years, there are 280 such discharges a year. Heart failure admissions among plan members have grown about 4% a year, so eligible discharges are projected at 280, 291 and 303 in years one to three. The same rule applies in every year, so the denominator does not shift.

Uptake

Not every eligible member will enroll. Uptake is projected at 60% in year one, while referral habits form and some members decline home visits, rising to 80% in year two and 90% in year three. Enrolled members are therefore 168, 233 and 273.

Two Worlds

Current world: no program. The 30-day readmission rate for eligible members is 22%, and the plan pays an average of $14,500 per heart failure readmission.

New world: the program runs. The plan pays $452 per enrolled member, which is the hospital's average cost per patient. Enrolled members' 30-day readmission rate falls to 16.5%, a 25% relative reduction, consistent with the assumption used in the cost-effectiveness comparison and more conservative than the trial result for a more intensive program (Naylor et al., 2004). Members who do not enroll keep the 22% rate.

The budget impact in each year is the plan's total spending in the new world minus its total spending in the current world, counting only the program fee and readmission costs, since other spending on these members is assumed unchanged.

Results by Year

Table 1 sets the two worlds side by side for each year.

Budget impact for the plan, base case, three years

Table 1

Reading the Base Case

In the base case, the program reduces the plan's spending on these members in every year, by about $58,000 in year one, $80,500 in year two and $94,300 in year three, a total of about $232,900 over the contract period. Savings grow as uptake rises, because each enrolled member avoids on average 0.055 readmissions worth about $798 against a fee of $452.

No discounting is applied, in line with budget impact convention, since the plan budgets in nominal dollars each year (Sullivan et al., 2014). Prices are held constant; if readmission costs rise faster than the program fee, savings would grow.

A Scenario in Which the Program Costs Money

The base case rests on the assumed 25% reduction. The trial evidence came from a longer, more intensive program led by advanced practice nurses, and our 30-day program may achieve less. If the relative reduction is only 12%, each enrolled member avoids 0.0264 readmissions, worth about $383, less than the $452 fee. The plan would then spend more in the new world: about $11,600 more in year one, $16,100 in year two and $18,900 in year three, a total of about $46,600 over three years.

The break-even effect is a relative reduction of about 14.2%, the point at which avoided readmission costs equal the fee. Below that, the program costs the plan money; above it, the plan saves. The plan's decision therefore hinges on whether our program can reduce readmissions by more than about 14%.

What the Projection Leaves Out

The projection counts only program fees and readmission costs. It omits possible changes in emergency visits, clinic visits and home health use beyond the program, which could move in either direction. It omits the readmission penalty our hospital faces under Medicare's fee-for-service program (McIlvennan et al., 2015), which is the hospital's concern rather than the plan's. And it assumes the plan's members respond like our overall heart failure population.

Sensitivity to Uptake and Fee

Uptake changes the size of the budget impact but not its direction. Because each enrolled member saves the plan about $346 in the base case, the difference between the value of readmissions avoided and the fee, higher uptake simply scales the saving up. If uptake stayed at 60% for all three years, the three-year saving would be about $181,200 rather than $232,900. If it reached 90% from the first year, the saving would be about $271,800.

The fee matters more for the direction. At the base-case effect, the plan breaks even at a fee of about $798 per member, so a fee well above the hospital's cost would still leave the plan better off. At the lower 12% effect, the plan breaks even at about $383. A fee set between those two figures, for example the $452 proposed, shares the expected savings between the plan and the hospital while leaving the plan exposed only if the program's effect is at the low end. That is the reason for the performance clause.

Recommendation to the Plan

Because the base case saves money but the break-even point is not far below it, the plan should agree to pay for the program with a performance clause: if the enrolled members' readmission rate in year one is not at least 14% lower than the current rate, the fee is renegotiated. That arrangement lets the plan capture the likely savings while limiting its exposure if the program underperforms.

References

McIlvennan, C. K., Eapen, Z. J., & Allen, L. A. (2015). Hospital Readmissions Reduction Program. Circulation, 131(20), 1796-1803. https://doi.org/10.1161/CIRCULATIONAHA.114.010270

Naylor, M. D., Brooten, D. A., Campbell, R. L., Maislin, G., McCauley, K. M., & Schwartz, J. S. (2004). Transitional care of older adults hospitalized with heart failure: A randomized, controlled trial. Journal of the American Geriatrics Society, 52(5), 675-684. https://doi.org/10.1111/j.1532-5415.2004.52202.x

Sullivan, S. D., Mauskopf, J. A., Augustovski, F., Caro, J. J., Lee, K. M., Minchin, M., Orlewska, E., Penna, P., Rodriguez Barrios, J.-M., & Shau, W.-Y. (2014). Budget impact analysis: Principles of good practice: Report of the ISPOR 2012 Budget Impact Analysis Good Practice II Task Force. Value in Health, 17(1), 5-14. https://doi.org/10.1016/j.jval.2013.08.2291