Bundled Payments Delivers Affordable Quality Health Care

As consumers, we are all familiar with the benefits of getting a packaged deal versus paying per item (e.g., all-inclusive travel vacation deals).  In the healthcare industry, the “packaged” deal is called bundled payments.  As a healthcare consumer with a medical problem, your only desire is to have the problem resolved with the best possible outcome.  Ideally, this would entail using the services of all necessary healthcare professionals working together to deliver the highest quality, most cost-effective care to you.  Under our present fee-for-service reimbursement model, doctors and the individual healthcare businesses they represent are not paid to deliver the cost-effective, quality care that American taxpayers and patients want.   In the bundled payments model, the patient pays for a “packaged deal” (one price) based on a specific medical problem/condition/illness during a set time period (usually 30-90 days). The total care provided by all healthcare businesses under the bundled payments model is called an episode of care. The rules and regulations for a given bundled payments model vary and today are combined quality of care requirements.

bundled payments for improved quality and affordabilityLet’s take a closer look at bundled payments.

Bundled Payments Before Obamacare (PPACA)

If you have ever looked closely at one of your health insurance plan’s Explanation of Benefits (EOB), you would have noticed that a hospital bill is presented as one combined fee while your non-hospital (ambulatory service) charges are itemized based on services defined by AMA medical codes.  The reason that you only see one hospital charge is because back in 1983 Medicare required that all hospital services be “bundled” based on the reason for the hospitalization (called the diagnosis group).  Private health insurance plans followed Medicare’s lead over the next several years.  This was essentially the first widespread application of bundled payments in the United States healthcare system.  Before Obamacare (PPACA), the use of bundled payments that included non-hospital care didn’t get past the limited market demonstration stage (voluntary programs) because of heavy lobbying by those who benefit the most from the very lucrative fee-for-service form of healthcare reimbursement (see the figure below).

bundled payments before Obamacare Bundled Payments under Obamacare (PPACA)

Obamacare (PPACA) took the bundled payments model from the “let’s study it to death in limited voluntary programs” to widespread use across the country with a goal to have 50% of all Medicare fee-for-service payments come from value-based alternative payment models like bundled payments by 2018.  The Centers for Medicare and Medicaid Services (CMS) Innovation Center is spearheading the efforts to bring the benefits of the bundled payments model to all Americans.

Bundled payments models under Obamacare (PPACA) are tested in voluntary programs before they are made mandatory to give the healthcare delivery industry the time to adjust to the changes necessary to adapt to value-based reimbursement models (i.e., delivering cost-efficient, quality care).  Once a voluntary program has shown positive results and ironed out some bugs, the Health and Human Services (HHS) takes it to the next logical step; namely, mandatory application in enlarged marketplaces across the country.

Bundled payments models include the following:

  • Advancing Care Through Episode Payment Models (EPMs)— for patients receiving treatment for heart attacks (AMI model), heart surgery to bypass blocked coronary arteries (CABG model), cardiac rehabilitation following a heart attack or heart surgery (CR model), and for surgery after a hip/femur fracture (SHFFT model).  All are slated for cancellation under the Trump administration.
  • Comprehensive Care for Joint Replacement (CJR)   Payment Model– for patients receiving hip/knee replacement surgery.  It is slated to be scaled back under the Trump administration from its scheduled mandatory nationwide program to “ let’s-continue-studying-it-to-death” voluntary programs in fewer geographic regions than during the Obama administration.

Example of Bundled Payments in Health Care

Let’s look at a specific example of bundled payments; namely, hip replacement, to describe how a bundled payments model works.  Hip replacement often requires the coordinated efforts of many healthcare businesses: the orthopedic surgeon who puts in the artificial hip implant, the hospital that provides the facilities and support staff for inpatient care, a medical device company that provides the artificial hip for implant, a rehabilitation facility that gets the patient functioning after the new hip is in place, and home care professionals who may provide additional care as needed.   Proper and adequate care is needed at each step of the episode of care if a successful outcome is to be achieved.  Hip replacement success is defined as reliable relief of pain and considerable improvement in function (walking).

In the fee-for-service model of reimbursement (see the unbundled column in the figure below), every service provided for the hip replacement is billed separately by all private healthcare businesses involved.  In this reimbursement model, the individual businesses make more money if they deliver low quality care because additional medical interventions (largely from complications caused by technical errors and infections contracted during the first surgery) become necessary.  If infection occurs, a second surgery can result in loss of muscular mass, bone, or both and a higher likelihood of complications than during the primary surgery.  Under Medicare’s Hospital Compare website, individual hospitals with high surgical complications for hip/knee surgery are given.  Rates of complications (from infections or implant failures) can be three times higher at some hospitals than others.  Both the patient and payer lose when the unbundled (fee-for-service) care encourages financial gain over high quality.

unbundled versus bundled payments hip replacement

In the bundled payments model of care, the total care (episode of care) for the hip replacement is reimbursed as ONE payment.  The medical team (hospitals, doctors, home health agencies, rehabilitation facilities, physical therapists, and other providers) must each do their part and share the one bundled payment.  In these Medicare models, the hospitals control the payment bundle and are allowed to share the savings (and risk) with all participating healthcare businesses as they see fit.   If the total costs are below a target set by the payer (like the $23,000 figure given in the figure above), then hospital and its partners get to keep the savings.   If not, they have to share the loss.

Under the bundled payments model, the patient has to achieve and maintain a particular outcome (e.g. be mobile and reduced pain) for some period of time to avoid penalties (usually 30-90 days).  This “incentivizes” the healthcare team leadership to make sure the patient is in fact fully recovered and received the appropriate amount of care.  The bundled payments model puts all healthcare businesses on notice that they have to deliver quality, cost-effective care individually and as parts of a team delivering a high quality patient outcome.  Higher health costs resulting from poor quality of service, out-dated procedures, uncoordinated care, and unnecessary procedures stick out like sore thumbs in the bundled payments model.  Bundled payments forces healthcare businesses to constantly innovate and improve even when competition doesn’t exist in their local markets.

Bundled Payments Models Today

Unfortunately for the American consumer and taxpayer, the Trump administration has moved to cancel (or delay indefinitely) any programs that occurred under Obamacare (PPACA) reform.  This move will increase the budget deficit, reduce Medicare program savings, and increase the possibility of future Medicare insolvency.  If you wish to comment on this blatant anti-Obamacare anti-healthcare-consumer move, there are still a few days left to comment and make your voice heard.

Although there is no question that the bundled payments, and other value-based reimbursement models are better in many healthcare situations than the seriously flawed fee-for-service presently in operation across the country, our present administration has chosen to politicize healthcare reform efforts. They forward a political agenda that returns control of quality and affordability to the private (and largely monopolistic) healthcare industry where income and profit maximization reigns.

Bundled payments forces healthcare businesses to deliver care that focuses on the TOTAL and COORDINATED care of patients rather than on individual pieces of care that maximizes income and profits under fee-for-service.  Luckily for us, many private employers and hospital groups are continuing to apply them even as our government pulls back.

updated October 11, 2017

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