6. Bundled Payments

MODULE 9 | Section 6 of 12

Bundled Payments

Value-based health care leaders Michael Porter and Robert Kaplan argue that bundled payments are the best mechanism for transforming health care toward value.1

 

“For virtually all products and services, customers pay a single price for the whole package that meets their needs,” Porter and Kaplan wrote.1 “When purchasing a car, for example, consumers don’t buy the motor from one supplier, the brakes from another, and so on; they buy the complete product from a single entity. It makes just as little sense for patients to buy their diagnostic tests from one provider, surgical services from another, and post-acute care from yet another.”

“Bundled payments may sound complicated, but in setting a single price for all the care required to treat a patient’s particular medical condition, they actually draw on the approach long used in virtually every other industry.”
According to Porter and Kaplan, to maximize value for patients, bundled payments must meet five conditions:
CONDITION
EXAMPLES OF CONDTIONS
Payment covers the overall care required to treat a condition.
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“The scope of care should be defined from the patient’s perspective (“Delivering a healthy child.”)”
Payment is contingent on delivering good outcomes.
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“Important outcomes include maintaining or returning to normal function, reducing pain, and avoiding and reducing complications or recurrences.”
Payment is adjusted for risk.
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“Risk factors should be reflected in the bundled payment and in expectations for outcomes to reward providers for taking on hard cases.
Payment provides a fair profit for effective and efficient care.
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“A bundled payment should cover the full costs of the necessary care, plus a margin, for providers that use effective and efficient clinical and administrative processes.”
Providers are not responsible for unrelated care or catastrophic cases.
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“Providers should be responsible only for care related to the condition – not for care such as emergency treatment after an accident or an unrelated cardiac event… Bundled payments should also include a ‘stop loss’ provision to limit providers’ exposure to unusually high costs from catastrophic or outlier cases. This reduces the need for providers to build such costs into the price for every patient.”

Episode-based bundled payments have worked well for defined surgical and acute conditions, such as with knee replacement. Bundled payments appear to have led to better quality for patients, reductions in Medicare payments, and higher profits for providers. 2-4 Results from bundled payments for medical conditions like CHF and COPD differ, however, and have not been associated with significant changes in Medicare spending or outcomes. This may be due to the comparative complexity of medical care vs surgical care (see table below).5

SURGICAL CARE
MEDICAL CARE
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While not as initially promising as the results from surgical bundles, what we have learned from the comparison of surgical and medical bundles can help inform the future. For example, medical episodes could start in the outpatient environment instead of during a hospitalization to provide better opportunity for coordination. Instead of emphasizing post–acute care that may be both complex and difficult to anticipate in medical care, incentives could focus on outpatient care and pre–discharge plans. Finally, we may just need more time to realize cost savings of medical bundles––other alternative models have required over three years before achieving savings.

Regardless of the type of bundle payment, one potential downside is it is possible providers could try to offset price decreases with volume increases (bundled payments do not limit the number of episodes), which could increase overall spending.

Recent evidence from a study comparing Medicare patients undergoing hip and knee replacements in areas with hospitals that volunteered to join Medicare’s bundled payment program versus areas that did not, found no evidence of an increase in surgical volume.6 However, it is possible the hospitals that volunteered represent a biased sample, since they could theoretically already have been doing a good job of managing bundled payments and that’s why they opted in to this program.

A more robust trial of hospitals randomized either to bundled or standard unbundled payments is currently underway, as of late 2018. A preliminary analysis of the first year of the 5-year trial found modest savings of 3% in post-acute care after knee or hip replacement, but no overall savings to Medicare after accounting for hospital bonuses.6

If anything is clear, it is that the story of bundled payments and how much they can potentially save the health care system is complicated and will require time to fully understand.

ADDITIONAL RESOURCES

The Center for Medicare and Medicaid Innovation, or CMS Innovation Center, is currently piloting a number of bundled payment programs:

Bundled Payment for Care Improvement Initiative (BPCI), which is examining four different bundled payment models for 48 high-volume and/or high-cost conditions

 

Oncology Care Model, for episodes of chemotherapy

 

Comprehensive Care for Joint Replacement (CJR), for hip and knee replacements

Read More about Bundled Payments in the Policy Brief from The Department of Veterans Affairs (November 2017)

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“A bundled payment system would truly transform the way we deliver care and finally put health care on the right path.”

Michael Porter PhD
Professor, Harvard Business School

REFERENCES

  1. 1- Porter ME, Kaplan RS. How to pay for health careHarvard Business Review. July-August 2016:88-100.

 

  1. 2-Dummit LA, Kahvecioglu D, Marrufo G, et al. Association between hospital participation in a Medicare bundled payment initiative and payments and quality outcomes for lower extremity joint replacement episodesJAMA. 2016;316(12):1267-1278.

 

  1. 3-Navathe AS, Troxel AB, Liao JM, et al. Cost of joint replacement using bundled payment modelsJAMA Intern Med. 2017;177(2):214-222.

 

  1. 4-Navathe AS, Song Z, Emanuel EJ. The next generation of episode–based paymentsJAMA. May 2017. doi:10.1001/jama.2017.5902

 

  1. 5-Navathe AS, Shan E, Liao JM. What have we learned about bundling medical conditions?Health Affairs. 2018, August.

 

  1. 6-Navathe AS, Liao JM, Dykstra SE, et al. Association of hospital participation in a Medicare bundled payment program with volume and case mix of lower extremity joint replacement episodesJAMA. 2018;320(9):901-910.

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