Bundled payments are gaining momentum as providers and payers begin exploring how to implement these models. Yet some policy analysts urge caution as they look beyond “how-to” aspects to longer-term consequences.
No more surprises
Bundled payments hold broad appeal to everyone from patients to payers by clearly defining the costs, treatment and period of care for a procedure such as CABG or a condition such as diabetes. Unlike the fee-for-service model, bundles reward efficiency rather than volume by tying payments to all services within an episode of care. Unnecessary testing bites into profits, as does avoidable complications or other practices that may jack up expenses with no improvement in quality.
Some successful early demonstrations such as Geisinger Health Systems’ CABG bundle have added to bundling’s rising reputation. The Pennsylvania system’s program, which included best practices to reduce complications and other approaches, reduced hospital charges by 5 percent in its first year after implementation (Ann Surg 2007;246:613-621). In 2012, Geisinger reported the program had reduced 30-day readmissions by 20 percent with a 17.6 percent increase in profit margin.
It’s a win-win that some stakeholders want to expand to the outpatient setting, for instance for PCI, and chronic conditions such as congestive heart failure and coronary artery disease. According to a survey conducted in October 2012 by the management consulting firm Booz & Company, 51 percent of hospitals reported exploring involvement in bundling while 30 percent already were pursuing a bundled model. The online survey included more than 150 hospitals and 400 physicians.
The Centers for Medicare & Medicaid Services continues to test models that extend the tentacles of an episode of care, including post-acute care. And while most agree that the fee-for-service model needs to be replaced, some health policy analysts warn that the change will be gradual with risks of repeating past mistakes.
“No matter what system you come up with, there will be downsides,” says Stuart H. Altman, PhD, an economist at Brandeis University in Waltham, Mass. As chair of the Prospective Payment Assessment Commission for 12 years, he advised Congress and the White House about diagnostic related group (DRG) initiatives and other reforms. “The fee-for-service system has turned out to be very expensive and hospitals have gamed it galore.”
|Prevalence & Count of Bundle Types Pursued by Hospitals & Health Systems|
|Note: Percentages may not add up to 100 due to rounding. Source: Bundled Care: The Opportunities and Challenges for Providers, Booz & Co.|
Bundling differs from the prospective payment system in significant ways, but some of the problems that arose in the past could resurface with bundling. Altman offers lessons learned with prospective payment as guidance for making bundling a success (Health Affairs 2012;31(9):1923-1930).
The prospective payment system based the payment on the patient’s diagnosis and average costs to the hospital for resources needed to treat the illness. It introduced DRGs, with weights that reflected the use of more or less costly services. DRGs applied to hospitals but not physicians, who remained under a fee-for-service payment model.
Bundling also relies on a DRG code at admission but it includes the physician services component in its payment. Bundling’s reliance of DRGs may make it vulnerable to potential disconnects between the actual cost of care and payment, though. That may be particularly acute in specialties such as cardiology and its subspecialties, where payments may lag behind improvements based on devices, pharmaceuticals or techniques.
“To the extent that new types of valves or stents or techniques are introduced and they are cost saving, over time the cost of that average of all hospitals will come down and therefore the cost of that particular intervention will come down,” Altman observes. The process applies to hospitals as a whole. “The problem develops, though, when the cost goes up.”
He cited the use of tissue plasminogen activators (tPAs), which were introduced as an alternative to the much less expensive streptokinase as a treatment for MI when Altman chaired the commission. “The average was still very heavily weighted toward the cheaper drug,” he recalls. “Every time the hospital gave the more expensive drug, it was incurring costs in excess of what the DRG was paying in the bundled payment.” While