Bundling Bedlam

Larry Wellikson, MD, FHM

Even if you receive your salary as an employee of your hospital or hospitalist group, you should keep a close eye on discussions taking place in Washington about reshaping the way hospital care is paid for. It seems that every 10 to 20 years, a seismic tremor starts on Capitol Hill and fundamentally shakes up the way healthcare is funded. It starts with Medicare, then quickly is adopted by private insurers; it not only changes the distribution of dollars, but the new incentives also drive the way medicine is practiced.

In the 1960s, change began with President Johnson and the development of Medicare and Medicaid. It was the first time specific populations—seniors and the poor—were “entitled” to healthcare coverage. In essence, Johnson created the largest “insurance company” in the country, and it became the tail that wagged the dog.

Right now, hospitals receive the DRG payment and physicians bill for their own professional services. In the future, will all the money flow to the hospital? How will these dollars be distributed? Who determines who will be awarded performance bonuses?

In the 1970s, President Nixon pushed through support for HMOs, and capitation and managed care spread well beyond the Kaisers of the world. This system incentivized controlling costs, because the total amount was capped, while maintaining an acceptable level of quality. For the first time, doing more did not generate more money.

In the 1980s, diagnosis-related groups (DRGs) changed Medicare payments to hospitals from cost-plus billings to a bundled fee for an episode of care. This motivated hospitals to work with their physicians—sometimes driven by protocols and case managers—to efficiently manage resources and length of stay (LOS). Between capitation, case rates, and DRGs, hospitals have had to refashion themselves to be leaner and more efficient.

Today, with national thought leaders like John Wennberg and Elliot Fisher at Dartmouth and Brent James at Intermountain revealing the many variations in the way healthcare is practiced—and throwing around statistics like “40% of healthcare is wasteful”—it is no wonder that as President Obama and Congress look to add 47 million uninsured persons to the system and try to reduce variation and increase accountabilities, there is every indication that radical changes will be made to the payment system.

One of these newfangled approaches is the bundling of payment for an episode of care to include both the facility charges (e.g., hospital care) and the professional charges (e.g., physician care). Bundling can be a good thing or a worrisome approach, depending on where you sit in this dialogue and how bundling is actually implemented.

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