Bundled Payment Are Here to Stay

Guest post by Neil Smiley, CEO and founder, Loopback Analytics.

Neil Smiley
Neil Smiley

When I remodeled my house a few years ago, I hired a contractor, and negotiated a bundled payment for the entire job.  The fees I paid to the contractor covered project management costs as well as the costs of independent subcontractors assembled do the work, such as carpentry, dry-wall, electrical and painting.  The contractor stood to make a nice profit if they efficiently managed the work of their subcontractors. On the other hand, he could lose his shirt if there were unmanaged rework and cost overruns.

Bundled payments are still relatively rare in healthcare. If a patient has knee replacement surgery, each provider – the surgeon, anesthesiologist, hospital, rehab facility and home health agency are paid separately. The patient is often left to serve as their own general contractor, without any one provider responsible for the cost and quality of episode. As a result, there can be significant variations in episode cost and clinical outcomes for the same procedure.

CMS has been experimenting with voluntary bundled payment demonstration projects for about five years. In 2011, CMS launched the Acute Care Episode (ACE) program with a handful of healthcare systems. In 2013, CMS began the Bundled Payment Care Initiative (BPCI) with over a hundred participating hospitals. The bundled payment programs included different conditions, procedures and episode durations. However, they all worked in a similar way: CMS combined a bundle of health care services that had been previously paid as separate components. A bundled payment price was set, representing the average historical episode cost, less a withheld amount (typically around 3 percent). A general contractor (AKA “convener”) was assigned responsibility for the total cost and quality of the episode of care. After five years of voluntary experimentation, the concept of bundled payments is about to go big.

In April 2016, CMS will require 800 hospitals that are located in one of 67 geographic regions to be conveners for Comprehensive Care for Joint Replacement (CJR) surgeries – mostly elective hip and knee replacements.  The bundle payment will include the costs of the hospital stay along with all related costs within 90 days of the hospital discharge. Each of the providers involved in the surgery and post-discharge care will continue to bill Medicare as before, but the hospital will now be financially responsible for all of the costs. If the bundled costs are below the target price, the hospital will receive a bonus that they may share (or not) with the other providers participating in the care episode. However, if costs are above the target, the hospital is responsible for paying the difference to CMS.

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