How Bundled Payments Rescued Carrum Health from the Brink of Collapse

In 2010, a subtle yet highly significant new healthcare payment model—bundled payment—was introduced for the first time under the Affordable Care Act.

Bundled payment is a composite payment model in which healthcare institutions charge for the entire continuum of care provided to an individual patient, encompassing ambulance services, nursing care, surgery, diagnostics, pharmaceuticals, and medical devices required for treatment. Examples include cardiopulmonary resuscitation, hip replacement, and diabetes management.

Bundled payment models aim to encourage healthcare institutions to achieve better patient outcomes at relatively lower costs. This represents a significant transition from the fee-for-service model to the pay-for-outcomes model.

In 2011, the Centers for Medicare & Medicaid Innovation (CMMI) launched the Bundled Payments for Care Improvement (BPCI) initiative, covering 24 common medical conditions and 24 surgical procedures, totaling 14,000 items. This is a modified bundled payment model primarily covering acute care and post-acute care for up to 90 days.

According to the medical institutions participating in the project, the Bundled Payments for Care Improvement (BPCI) model has made significant progress and is more cost-effective than Accountable Care Organizations (ACOs). In 2016, the Centers for Medicare & Medicaid Services (CMS) implemented a mandatory bundled payment model for joint replacement surgeries, covering 800 hospitals across 67 major U.S. cities.

And CMS’s mandatory move inadvertently saved a struggling startup—Carrum Health.

Carrum Health was founded in 2014 with the aim of building a bundled payment platform. In its early stages, Carrum Health struggled to find partners. By the end of 2016, driven by favorable policies from the Centers for Medicare & Medicaid Services (CMS), more than 400 corporate employers on the U.S. West Coast had become clients of the company.

Sachin Jain, Founder and CEO of Carrum Health (Image from the company’s official website)

Carrum Health, the first company in the United States to build a bundled payment platform for self-insured employers, was founded on founder Sachin Jain’s accurate foresight into the development trends of the U.S. healthcare payment landscape.

Prior to founding his company, Sachin Jain worked at Accretive Health, a revenue cycle management firm, and the management consulting firm Booz & Company. At Accretive Health, he gained insight into healthcare payment processes and recognized inefficiencies within this segment. At Booz & Company, he served as a management consultant in the North American Healthcare Practice, focusing on value-based payment models, particularly bundled payments.

As Sachin Jain delved deeper into value-based payment models, he gradually realized that “bundled payments are an emerging concept with significant development potential to enhance the efficiency of payment processes.”

Particularly following the enactment of the Affordable Care Act, the cost of providing health benefits to employees has continued to rise for businesses, placing increasing financial pressure on them. Sachin Jain believes that the fee-for-service model is outdated and that the healthcare industry needs to transition to a value-based payment model, with bundled payments serving as a core component of this transformation.

In 2013, Sachin Jain left Booz and founded Carrum Health the following year. Sachin Jain served as Chief Executive Officer. Brent Nicholson, who had previously worked with him at Booz, also left his former employer to join Carrum Health’s founding team as Chief Operating Officer.

According to the Carrum Health website, the company’s leadership team consists of 16 members who are responsible for technology, product, finance, operations, customer management, and other functions. Based on their professional backgrounds, each member has over 10 years of experience in their respective fields.

In addition to a leadership team with broad functional coverage, Carrum Health has specifically established a Medical Advisory Board and a Corporate Advisory Board. The Medical Advisory Board is composed primarily of professors from prestigious universities such as Stanford University and Doctors of Clinical Medicine, while the Corporate Advisory Board consists mainly of benefits management professionals from well-known enterprises. Clearly, their presence serves to ensure the professional rigor of Carrum Health’s upcoming initiatives.

VCBeat (WeChat ID: vcbeat) has noted that Carrum Health has even recruited Sally Welborn, the former Global Benefits Executive at Walmart who is now retired, to serve on its Corporate Advisory Board. During her tenure at Walmart, Ms. Welborn designed and implemented employee health benefit programs for 2.2 million Walmart employees worldwide, including nationally recognized Centers of Excellence (COE) programs featuring bundled payments for specific treatments. Carrum Health values her expertise in driving innovation in corporate employee health benefits.

Carrum Health’s Department Leadership Team (Screenshot from the company’s official website)

The principles of bundled payments are relatively straightforward, but establishing a bundled payment program requires substantial technical work, including defining the parameters of the bundle—such as the episode of care and measures of quality of care; selecting healthcare facilities based on procedural appropriateness; contracting with healthcare providers; updating claims processing systems; and determining payment rates.

Through bundled payment programs, Carrum Health connects self-insured corporate employers with high-quality healthcare providers locally and across the United States to establish Centers of Excellence (COEs), while aligning provider incentives with quality performance to improve patient care experiences and treatment outcomes.

Under this mechanism, Carrum Health initially targets small and medium-sized employers. By partnering with multiple such enterprises, Carrum Health’s platform aggregates a substantial insured population, thereby establishing significant market influence.

Sachin Jain explained, “Large self-insured employers have sufficient leverage to negotiate bundled payment contracts with top-tier hospitals, whereas smaller employers typically lack the bargaining power to do the same. Our ability to negotiate favorable prices with healthcare institutions is significantly stronger than that of individual small and medium-sized employers.”

Carrum Health’s bundled payment program allows corporate employers to integrate their insurance plans, enabling Carrum Health to access claims data from these plans. Based on the number of employees in the risk pool and cost-saving objectives, Carrum Health leverages this claims data to determine which disease treatments are suitable for bundling, thereby helping corporate employers enhance the predictability of their healthcare expenditures.

Meanwhile, based on data from treatment outcomes, Carrum Health can provide healthcare institutions with recommendations on how to optimize care outcomes and improve medical services in a cost-effective manner, thereby enhancing the overall efficiency of the entire program.

Carrum Health then negotiates prices with healthcare providers for specific medical services on behalf of these small and medium-sized enterprise employers, and enters into bundled payment contracts. Typically, Carrum Health adopts a regional focus, bringing together employers and healthcare providers within the same geographic area, enabling employees to access high-quality medical care without needing to cross regional boundaries.

Carrum Health’s bundled payment program initially covered only orthopedic, cardiac, and bariatric surgeries, and later expanded to include five common surgical procedures: knee replacement, hip replacement, cervical fusion, lumbar fusion, and coronary artery bypass grafting.

For employers, Carrum Health uses pre-determined bundled payment prices, eliminating price variability and unpredictability. “Mid-sized employers with 5,000 to 10,000 covered lives save approximately $5 to $8 per employee per month through Carrum Health’s bundled payment program,” said Sachin Jain.

Because Carrum Health’s bundled payment program saves employers substantial amounts of money, enabling them to cover employees’ medical bills, employees typically pay only a small out-of-pocket amount, if anything at all. Moreover, the bundled payment model has led to better treatment outcomes for employees. According to Sachin Jain, the average readmission rate for total knee arthroplasty among typical Medicare beneficiaries is approximately 5.5%, whereas patients who undergo surgery at Carrum Health’s Centers of Excellence have a readmission rate of just 1.7%.

Furthermore, Carrum Health provides guidance and assistance to corporate employees throughout their care journey via phone, email, and other channels, thereby enhancing their healthcare experience. Additionally, following medical visits, Carrum Health ensures that employees adhere to their physicians’ instructions, helping to reduce unnecessary medical expenditures.

For contracted healthcare institutions, they can gain additional patient volume through Carrum Health without having to negotiate individual bundled payment contracts with each employer, significantly reducing the complexity of billing management.

Under Carrum Health’s strategic plan, the company will expand its bundled payment programs to include additional services such as obstetrics, oncology, chronic disease management, and mental health. “Any healthcare services that can be bundled will be gradually added to the Carrum Health platform. Our mission is to drive cost savings across the entire healthcare sector, improve care quality, and enhance patient experience,” said Sachin Jain.

In fact, most startups endure certain “tribulations” in their early stages; some perish in the process, while others are fortunate enough to survive. Carrum Health belongs to the latter category.

“When Carrum Health was first established, most healthcare institutions were reluctant to collaborate with us,” said Sachin Jain, founder of Carrum Health, with a hint of grievance in a later media interview. At that time, bundled payments were merely a concept, while capitation was the mainstream outcome-based payment model.

The turning point came in the summer of 2015. After a trial period of bundled payment models, the U.S. Centers for Medicare & Medicaid Services (CMS) signaled to the industry that bundled payments would be mandated for joint replacement surgeries in 2016. As the policy direction became clear, even before any formal documents were issued, astute business leaders recognized the inevitable trend and pivoted to seek partnerships with Carrum Health.

According to the company’s website, by 2016, Carrum Health had established partnerships with more than 400 employers and healthcare providers across three West Coast markets, including San Diego, Seattle, and San Francisco. In that same year, Carrum Health achieved average cost savings of over 40% for its clients on five common surgical procedures: knee replacement, hip replacement, cervical fusion, lumbar fusion, and coronary artery bypass grafting (CABG).

From 2016 to 2017, Carrum Health enjoyed significant industry recognition. Leveraging its value-based bundled payment model and Centers of Excellence (COE) solutions, Carrum Health won awards multiple times in innovation competitions hosted by authoritative organizations.

In May 2017, Carrum Health also secured $6.5 million in seed funding from Wildcat Venture Partners, along with partial contributions from venture capital firms SJF Ventures and SpringRock Ventures. This marked Carrum Health’s first capital infusion since its founding in 2014 and remains its only financing round to date.

Strangely, Carrum Health, which is “out of favor” in the capital markets, has been expanding its market footprint.

Since breaking through the initial market barriers, Carrum Health has expanded its presence nationwide by partnering with national employers. Its footprint has grown from its early bases in San Francisco, San Diego, and Seattle to include Boston; Chicago; the Tri-State Area (New York, New Jersey, and Connecticut); Maryland; and the New England region (comprising Maine, New Hampshire, Vermont, Massachusetts, Rhode Island, and Connecticut).

In addition to small and medium-sized enterprises (SMEs) partnering with it, an increasing number of large corporations have been drawn in, with municipal organizations across California and Fortune 150 companies even becoming clients of Carrum Health. Correspondingly, the healthcare institutions collaborating with Carrum Health have become increasingly prominent, with Scripps Health, Stanford Health Care, and Johns Hopkins Bayview Medical Center successively joining as new members of its Centers of Excellence network.

Based on Carrum Health’s market performance, we may infer indirectly that the company possesses sufficient profitability and therefore does not need to raise capital from investors.

During its research into Carrum Health, VCBeat also identified a curious phenomenon: in the niche segment of bundled payments within the U.S. healthcare industry, Carrum Health is one of the few players.

As Clayton Christensen articulated in *The Innovator’s Prescription*, value-based care represents the future pathway for the healthcare industry. Clearly, value-based bundled payments also align with the developmental trends of the U.S. healthcare payment sector. Yet, it is perplexing that this ideal and innovative payment model has not attracted substantial capital support, nor has it spurred the emergence of numerous competitors.

In fact, even Sachin Jain, the founder of Carrum Health, has had to acknowledge that there are certain developmental challenges in building a bundled payment platform. “It’s somewhat akin to the ‘chicken or egg’ dilemma,” Sachin Jain said in an interview with the media. When Carrum Health attempted to onboard a healthcare provider in Texas, the provider would inquire about how many clients Carrum Health had in the state. Meanwhile, when corporate employers in Texas sought partnerships with Carrum Health, they would ask how many healthcare providers Carrum Health had partnered with in the state.

Meanwhile, multi-party collaboration inevitably requires contributions from all participants. In the case of the bundled payment program established by Carrum Health, corporate employers must not only provide upfront financial investment but also supply data, conduct employee health education, and perform cost assessments. Currently, bundled payment platforms cover only a limited range of conditions. On the surface, the cumbersome efforts required of corporate employers appear to outweigh the returns they receive, resulting in low cost-effectiveness.

Turning to healthcare institutions, bundled payment models hold them accountable for patient treatment outcomes. However, treatment outcomes are often difficult to measure accurately, particularly for chronic diseases. Consequently, healthcare institutions face greater pressure under this model; to safeguard their revenue, they may even engage in patient selection. This results in certain patients being denied access to care, which clearly contradicts the original intent behind the design of bundled payment models.

Nevertheless, it is undeniable that as one of the early pioneers in this field, Carrum Health has introduced scalable and easily adoptable solutions to the U.S. healthcare payment sector, reducing the difficulty for corporate employers and healthcare institutions in transitioning to value-based care.

Meanwhile, as a payment model that has long been validated and operated for many years in the consumer sector, bundled payments also serve as a reference for China’s healthcare payment landscape. Currently, there appear to be no industry players in China specifically dedicated to developing bundled payment models. In the near future, with improvements and pilot implementations, this model may well take root in China’s healthcare industry, thereby enhancing the overall development of the sector.

Reference link:

https://www.carrumhealth.com/

http://www.hbrchina.org/2016-10-08/4597.html

http://www.doc88.com/p-2052806877212.html