After 50+ years of paying doctors and hospitals on a per service basis, our government has finally realized that this is only making doctors rich and not delivering quality care to patients. Bundled payments,one of the new healthcare payment models being used by both public and private payers, forces healthcare businesses to deliver care that focuses on the patient and not on individual financial gain. This alternative payment model, for the delivery of more cost-effective (affordable) quality care to the American people, is being spearheaded by the new Centers for Medicare and Medicaid Services (CMS) Innovation Center. Under Obamacare (PPACA), it was CMS’s goal to have 50% of all Medicare fee-for-service payments come from alternative payment models by 2018.
How Does Bundled Payments Work?
When a patient goes into a hospital for some type of surgery, a successful outcome is the combined efforts of many healthcare businesses. For example, elective hip replacement calls for the services of an orthopedic surgeon, a hospital, and a rehabilitation facility. If any of the parts of care are inadequate (e.g., sloppy surgical or hospital practices can result in unnecessary infections and the need for implant replacement), then the patient (and payer) will suffer. When the care is coordinated with the patient outcome of primary concern, then the end result is cost-effective quality care. When total care (called episode of care) is practiced, it delivers an outcome that is better than the sum of its parts (as is delivered under the fee-for-service payment model).
Let’s look at joint replacements (hip and knee) to illustrate the difference between the fee-for-service (unbundled) model and the bundled payment model. In 2014, more than 400,000 Medicare-covered hip and knee replacement surgeries were performed, totaling more than $7 billion in hospitalization costs alone. The data at CMS showed that the rate of complications, such as infections or implant failures, can be three times higher at some facilities than others resulting in increased surgery, hospitalization, and recovery costs. Medicare paid anywhere from $16,500 and $33,000 for the total “episode of care”.
In the simple illustration below, I have summarized the difference between unbundled (i.e., fee-for-service) and bundled payment models using a hip replacement example. The number of medical codes I show are only used for illustration and may be more or less in reality.
Under the bundled payment model, the medical team (hospitals, doctors, home health agencies, skilled nursing facilities, physical therapists, and other providers) contributing to the care will be given a fixed amount of money for all the services performed to treat a patient undergoing a specific condition. Participating hospitals control the payment bundle and are allowed to share the savings (and risk) with all participating healthcare businesses. If the total costs are below a target set by the payer (like the $16,500 figure given in the illustration above), the hospital and its partners get to keep the savings. If not, they have to pay the payer the difference. The bundled payments model forces the medical team to work together in the most cost-efficient and high quality way and encourages doctors to use post-operative services in a more cost-effective manner. Under the bundled payment model, the patient has to stay healthy for some period of time to avoid penalties (usually 90 days). This “incentivizes” the healthcare team leadership to make sure the patient is in fact fully recovered and received the total care needed.
I once asked a cardiologist why he prefers to go through the groin (instead of the arm) for cardiac catheterization and he answered “I’m more experienced doing it through the groin and therefore prefer it”. Another cardiologist admitted that cardiac catheterization is easier for him while catheterization through the arm is better for the patient. For the patient, cardiac catheterization through the arm requires less hospital time and less potential for infection at the incision site. Post-surgical care of groin incisions also requires greater attention from nursing staff in the hospital. Bundling payments demands that doctors embrace procedures that benefit patients ahead of what is best for them individually.
Under the unbundled (fee-for-service) payment model, every healthcare professional is paid according to the services provided with more than 10,000+ services listed in medical coding. In fact, under fee-for-service payment, healthcare professionals are paid MORE if they do a poor job because more services ($$$) will be required. Doctors bear none of the financial risk of using expensive hospital facilities, keeping patients in the hospital longer, or using less cost-effective drugs. When doctors are allowed to make more money through quantity rather than quality, hospitals are strongly hindered from implementing cost-efficient quality healthcare.
Higher health costs resulting from poor quality of service , out-dated procedures, uncoordinated care, and unnecessary procedures stick out like sore thumbs in bundled payment models. The bundled payments model puts all groups in the healthcare industry on notice that they have to deliver QUALITY, COST-EFFECTIVE care. Just like in other industries, healthcare businesses need to constantly innovate and improve or they run the risk of going out of business or being replaced by someone else who can.
Embracing change is not always easy, especially for healthcare businesses comfortable with the way they have been going business for decades with many in monopolistic environments where doctors are scarce. They have never had to put the interests of their patients ahead of their own. Not all healthcare businesses have the leadership and commitment necessary to put quality and patient outcomes ahead of short-term income and profits. It requires significant changes on the part of the healthcare providers in areas like how and what services are provided, how they interact with patients, and how they coordinate with other healthcare businesses.
Are Bundled Payments Working?
The concept of bundled payments did not begin with the Obamacare (PPACA) efforts by the CMS Innovation Center. There have been a number of bundled payment programs in the past and many have been initiated by individual insurance companies and hospital groups. Each of these efforts required voluntary participation by healthcare providers. For example, Baptist Health System, a network of five hospitals in San Antonio, saved an average of $5,577 on each joint replacement without sacrificing the quality of care under its bundled payments model. In contrast, Medicare payments for joint replacement increased by 5% across the country during the same period covered in this study.
Because evidence shows that the bundled payment model is working to reduce costs and improve quality, the CMS Innovation Center has taken bundled payments from the voluntary to the mandatory stage. In many healthcare markets, mandatory participation is required because many healthcare businesses do not have any competition and therefore are not “incentivized” to voluntarily accept bundled payments.
Starting in April, 2016, CMS introduced mandatory bundled payment for hip and knee replacement, the two most common (and routine) inpatient surgeries for Medicare beneficiaries,for 800 hospitals in 67 cities. The program had previously been tested on smaller hospitals who participated voluntarily. Mandatory bundled payments were expanded to include treatments for hip and femur fractures, heart attacks, bypass surgery and cardiac rehab beginning in July 2017.
The days of fee-for-service reimbursement are numbered. This form of payment has only served to make doctors rich without delivering quality, cost-effective care. Bundled payments forces healthcare businesses to coordinate care and put the needs of the patients ahead of the financial needs of individual healthcare businesses. Patients and taxpayers should encourage our government’s efforts to bring mandatory bundled payments to health care. Find out which healthcare facilities are participating in bundled payments and take your healthcare business to them if possible.