Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes and Lower Costs August 2013
Table of Contents Executive Summary............................................................................................................................3 Overview – Need for Healthcare Reimbursement Payment Reform .....................................................4 Traditional vs. Alternative Reimbursement Payment Models ..............................................................4 Episode or Bundled Payment As A Popular Alternative to FSS .............................................................5 Payors and Providers Partner to Implement Bundled Payments ..........................................................7 Key Hurdles to Successful Implementation of Bundled Payments ........................................................8 Best Practices for Bundled Payments’ Success ....................................................................................8 Outlook .............................................................................................................................................9 References....................................................................................................................................... 10
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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Executive Summary Under the changes mandated by recent healthcare regulations and the burden of increasing costs, the United States healthcare industry is going through a transformation to create high-quality and low-cost care for patients. As both payors and providers try to seek better coordination, lower costs and greater quality of care, one of the focus areas is going to be the on-going change in reimbursement payment models. Moving away from traditional payment models such as fee-for-service (FFS), stakeholders are exploring and adopting more efficient alternate payment models like bundled payments. Bundled payment model has emerged as a popular choice in the process of implementing a better healthcare payment solution. The traditional FFS model is now widely believed to be incentivizing providers to perform more expensive or potentially unnecessary procedures, with limited or no measurement of quality. In contrast, under the bundled payment model, hospitals and physicians assume the financial risk for delivering all services for one price for one patient’s episode of care. Additionally, hospitals and physicians will work together to care for a health plan's patients and may share in any savings if costs are lower than a specified target or benchmark. This drives greater accountability, better coordination, and efforts to reduce care costs. Several organizations are embracing the bundled payment model and gaining mover’s advantage, as evidenced by Blue Cross and Blue Shield of North Carolina (BCBSNC) and Triangle Orthopedic Associates (TOA), and Humana and 21st Century Oncology. However, payors and providers need to consider several key operational issues for successfully implementing a bundle payment model. Providers need to evaluate and manage the uncertainties involving billing and payments that might affect the claims process and also check their existing technological capabilities to adopt the new payment model. On the other hand, payors should be concerned with the administration of claims under the bundled services and evaluate the risks involved in the new payment processes. As several health systems are already in the process of implementing the bundled payment model, the future of bundled payments holds great promise and the trend indicates a longer term shift towards larger adoption of the model.
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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Overview – Need for Healthcare Reimbursement Payment Reform The U.S. healthcare industry is looking forward to improve patient care quality and reduce costs – in its efforts to do so; it is moving away from the traditional fee-for-service payment models and adopting alternative more efficient payment models. Development of the new healthcare payment models will change the way physicians, hospitals, and other care providers are paid by payors and increase focus on quality of outcomes at lower cost; thereby enhancing the value of healthcare and also encouraging better coordination among providers and payors. The key driving factors for payment reform in healthcare have been - increasing reform pressure on payors and providers to reduce cost of care, changes in the Medicare reimbursement policies, development of accountable care organizations (ACOs), including the rise in availability of clinical information through health information exchanges (HIEs) and electronic medical records (EMRs). Providers are asking the US Government or states or private payors to pay for a treatment as a whole – instead of a fee-for-service medicine, in which a provider receives a payment for every test, procedure and visit.
Additionally, the healthcare payment reform will allow for efficient utilization of facilities, and thereby physicians and hospitals can offer a lower total price to Medicare or health plan than today. This will benefit payors as they will also be paying less to providers for care if adverse events, readmissions, etc. are reduced.
Traditional vs. Alternative Reimbursement Payment Models The US healthcare system has traditionally used the Fee-For-Service (FFS) payment model. A provider is paid a fee for each service rendered to the patient. Hence, FFS is inherently volume based. The FFS model is now widely believed to be incentivizing providers to perform more expensive or potentially unnecessary procedures, with limited or no measurement of quality or appropriateness of a procedure to the payment being made for care.
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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The US healthcare system has traditionally used the Fee-For-Service (FFS) payment model. A provider is paid a fee for each service rendered to the patient. Hence, FFS is inherently volume based. Also, the FFS model is now widely believed to be incentivizing providers to perform more expensive or potentially unnecessary procedures, with no measurement of quality or appropriateness of a procedure to the payment being rendered. With quality over cost in mind, stakeholders are experimenting with alternative payment models to drive efficient coordination, reduce costs, and generate quality outcomes. Some of the currently popular alternative payment models in play include:
Payment Model
Model Description
Episode or Bundled Payments
Episode or bundled payments are single payments for a group of services related to a treatment or condition that may involve multiple providers in multiple settings. Bundling includes the acute event and some specified period following the initial event.
Pay for Coordination
This model includes payment for specified care coordination services, usually to certain types of providers. A typical example would be a medical or healthcare home model where the medical home in exchange for the delivery of care coordinated services is entitled to monthly payments – otherwise not provided and reimbursed.
Pay for Performance
A payment or financial incentive (e.g. a bonus) associated with achieving defined and measurable goals related to care processes and outcomes, patient experience, resource use, and other factors. The evidence regarding the effectiveness of pay for performance in improving quality and reducing costs is mixed.
Comprehensive Care/Total Cost of Care Payment
The comprehensive care or total cost of care payment model involves providing a single risk-adjusted payment for the full range of health care services needed by a specified group of people for a fixed period of time.
Episode or Bundled Payments As A Popular Alternative to FFS Episode or Bundled payment model is one of the popular payment models that offer a solution to the low-cost, high-quality challenge in the US healthcare industry. In a bundled payment methodology, a single "bundled" payment covers services delivered by two or more providers during a single episode of care or over a specific period of time. For example, if a patient has knee replacement surgery, rather than making one payment to the hospital, a second payment to the surgeon and a third payment to the anesthesiologist, the payor would combine these payments for the specific episode of care (i.e., knee replacement surgery). Hospitals and physicians would work Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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together to care for a health plan's patients and may share in any savings if costs are lower than a specified target. Providers are also required to care for patients who have complications during the episode of care, usually 30 to 120 days for acute conditions or a full year for chronic care. Under the bundled payment model, hospitals and physicians assume the financial risk for delivering all services for one price for one patient’s episode of care over a given period — usually 30, 60, 90 or 120 days. Most bundled payment programs today are for acute care episodes, such as hip or knee replacement or spine or cardiac surgery. Certain payors are making bundled payments to providers for patients with asthma, diabetes, cancer and other chronic conditions. Under these cases, the episode of care is usually around a year long. In January 2013, the Center for Centers for Medicare & Medicaid Services (CMS) launched a bundled payment program to cover 500 providers. CMS hopes the program will encourage hospitals, physicians, post-acute facilities and other providers to work together across settings and specialties to improve outcomes, such as reducing readmissions and duplicative care, while lowering costs. Under the bundled payment initiative, CMS will link payments for multiple services that a patient receives during an episode of care. For example, instead of a surgical procedure generating multiple claims from multiple providers, the entire team is compensated with a “bundled” payment that provides incentives to deliver health care services more efficiently while maintaining or improving quality of care. Providers will have flexibility to determine which episodes of care and which services to be bundled together.
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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Saint Joseph Regional Medical Center (SJRMC) is one of 500 healthcare organizations that will begin participating in the Bundled Payments for Care Improvement Initiative, under the CMS, across the nation. Early adoption of the bundled payment program may prove advantageous for hospitals, helping them solidify their place in the market and attracting doctors and insurers. Additionally, providers can increase profits through operational efficiencies and greater collaboration. Payors can adjust incentives for providers who participate in the bundled payment model. They thereby can achieve negotiated reductions in medical costs, shift some types of risk to providers and create more predictability in payments. The bundled payment model will be beneficial for private payors as well as the CMS.
Payors and Providers Partner to Implement Bundled Payments Providers are partnering with both the government and private payors to adopt the bundled payment program. Here are some examples of such partnerships: In December 2012, Blue Cross and Blue Shield of North Carolina (BCBSNC) and Triangle Orthopaedic Associates (TOA) announced to collaborate and bring a first-of-its-kind payment model to TAO. North Carolina witnesses the first bundled payment model agreement between BCBSNC and a physicianowned practice. This new payment model will allow BCBSNC customers, including State Health Plan members, to pay a fixed price for knee replacement surgeries received at North Carolina Specialty Hospital – a physician-owned hospital holding a 5-star rating from Healthgrades for total knee replacements.
In February 2013, Humana and 21st Century Oncology entered into a new national contract, allowing 21st Century Oncology to receive bundle payments for 13 of the most common radiation therapy courses of treatment. The contract will be dependent on ICD-9 codes and accounts for 80% of all diagnoses. Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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21st Century Oncology had been working with the CMS over the last two years to develop a model of care that would measure outcomes associated with evidence-based practice. This model consists of bundling all the services, from consult to 90-day follow-up, into one case rate.
Key Hurdles to Successful Implementation of Bundled Payments Payors and providers need to consider several issues for successfully operating a bundle payment model. They should consider issues like setting the right prices, risk sharing potential, frequency and mode of payments, and quality improvement benchmarks among others. Also, bundled payments require hospitals to align incentives by contracting with physicians and to share risks, however many providers are not yet ready to determine a fixed cost for an episode of care. Hospitals will need historical data on care for patients with similar medical situations as well as analytical data on what to pay individual clinicians. However with the advent of HIE and EMR, availability and usage of clinical data will be more widespread. Providers also need to evaluate and manage the uncertainties involving billing and payments that might affect the claims process and also check their existing technological capabilities to adopt the new payment model. On the other hand, payors should be concerned with the administration of claims under the bundled services and evaluate the risks involved in the new payment processes.
Best Practices for Bundled Payment Success To implement a successful bundled payment model, providers need to enhance their infrastructure and gain management support to accommodate new ways of billing, payments receivable and patient management. They are required to have clear understanding of the risks involved with the adoption of bundled payment models and objectively assess their needs, capabilities and risk appetite. Some of the following measures may help the providers to build a successful bundled payment model: Move toward integrated care delivery – Hospitals need to oversee care coordination among several outpatient providers. Standardization of devices and reduction of surgical supply costs will help achieve cost reductions. Process improvements within hospitals are limited; this should be followed by better coordination of care across multiple providers and sites, thereby providing integrated delivery of care. Take the responsibilities of the payor – To run a bundled payment system successfully, hospitals must be able to assess risk, set appropriate prices given those risks and pay out claims to the various providers offering their services as part of the bundled payment. Effectively outline and ensure physician and other provider alignment – Hospitals must align financial incentives for physicians with the desired outcomes of the bundled arrangement as the physicians drive majority of the care costs.
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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Outlook The Medicare Payment Advisory Commission (MedPAC), in its June 2013 report to Congress, reported pundled payments as the future of post-acute care. Bundled payments may be evaluated by comparing providers’ average claims for a specific medical condition with a benchmark figure. A bundled payment will be larger when average Medicare costs are less than the benchmark, smaller if costs exceed the benchmark. Future payments would have a growing quality emphasis. Medicare is looking forward to elect and reinforce beneficiaries’ decisions about place of care, by raising the minimum conditions of participation to exclude the poorest quality providers or by charging higher beneficiary cost-sharing amounts when a beneficiary chooses not to use recommended (post-acute care) settings or providers. United Health Group reported in a December 2012 working paper; the adoption rate or share of total spending that is affected by payment reform initiatives; and the percentage reduction in spending that would be achieved on average by adopters, net of any gain-sharing arrangements with doctors and hospitals — that is, the net savings that might be available to reduce insurance premiums for employers and families and lower federal and state spending on health care. Payment reforms can offer savings in the range of $200 – $600 billion through 2022. Adoption rates for major payment reforms over the next 10 years (starting 2012) may run as low as from 20% to as high as 60%. As the healthcare industry moves towards the bundled payment model, the early successful examples of payor-provider partnerships leading to gain in quality over costs indicate a longer term shift towards larger adoption of the bundled payment model.
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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References •
Healthcare Payer News
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Becker’s Hospital Review
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U.S. Today
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DecisionHealth Daily
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News Articles
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American Progress Website
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Blue Cross and Blue Shield of North Carolina Website
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Saint Joseph Regional Medical Center Website
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The Med Circle LLC Website
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Healthcare Incentives Improvement Institute
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UnitedHealth Center for Health Reform & Modernization
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American College of Cardiology
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Rand Health
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The National Commission on Physician Payment Reform
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American Medical Association
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Hospitals & Health Networks
Implementing Bundled Payments: A Popular Choice to Drive Better Care Coordination, Quality Outcomes, and Lower Costs
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