A Bumpy Bundling Road Ahead


Patrick J. Torcson, MD, MMM, FACP, laughs when he recalls his initial reaction to the proposal to bundle Medicare payments to hospitals: “If this passes legislation, I’m moving to Dubai.”

Dr. Torcson, chairman of SHM’s Performance and Standards Committee, and medical director of the hospitalist program at St. Tammany Parish Hospital in Covington, La., has since tempered his thinking. Like many physicians, he understands the need for Medicare to address growing costs. Nevertheless, he is wary about the bundling proposal in June’s Medicare Payment Advisory Commission (MedPAC) report to Congress.

Dr. Torcson’s opinion about reforming the nation’s healthcare delivery system points to the difficult dichotomy facing hospitalists and other physicians: they agree change is necessary, but worry about the consequences of bundling payments.

Under the new model, rather than pay for each service provided, Medicare would reimburse a lump sum for all treatment linked to an episode of care for conditions such as congestive heart failure, chronic obstructive pulmonary disease or cardiac bypass surgery. In addition, the Centers for Medicare & Medicaid Services (CMS) would provide hospitals and physicians with reports detailing their resource use and readmission rates for specific episodes of inpatient care. After two years, the providers’ reports would become public.

Another proposal would cut payments to hospitals with high risk-adjusted readmission rates for select conditions while urging Congress to ease gainsharing restrictions to financially reward physicians helping hospitals improve readmission rates and overall patient care.

Bundling is a really radical change. It’s going to generate all kinds of consequences—intended and unintended—and no one really has a handle on what’s going to happen.

—Eric Siegal, MD, chairman of SHM’s Public Policy Committee and regional medical director for Cogent Healthcare

The switch to bundling, Dr. Torcson says, could entice hospitalists to encourage a healthcare delivery model that fosters collective accountability. He and other physicians warn the system could just as easily create imbalances in power, provide incentives for withholding care and spell disaster for rural physicians and ill-prepared networks.

“Philosophically, it’s a nice idea, but I don’t think it’s realistic and I don’t think hospitals that have a small budget will be able to survive it,” says Rachel Lovins, MD, director of the hospitalist program at Waterbury Hospital in Connecticut. Dividing a bundled payment equally amongst hospital departments “will be close to impossible,” she says, and struggling hospitals will fall further into debt. The new system also may leave providers with inadequate resources and lead to angry outpatient doctors who refuse to accept Medicare patients.

Part of the problem, according to Eric Siegal, MD, chairman of SHM’s Public Policy Committee and regional medical director for Cogent Healthcare, is how little physicians know about the effects of the new plan. “Everyone understands that this is a dramatic paradigm shift,” he says. “Bundling is a really radical change. It’s going to generate all kinds of consequences—intended and unintended—and no one really has a handle on what’s going to happen.”

The Status Quo Must Change

One of few points of agreement is that the status quo is untenable. A recent summary of MedPAC’s report in The New England Journal of Medicine blamed the fee-for-service model for fueling negative aspects of the current healthcare system and warned of an escalation in Medicare spending. “Fee-for-service payment spurs spending growth, supports a fragmented and compartmentalized delivery system and does nothing to reward quality or value,” the MedPAC authors write.

Though some physicians remain cautiously optimistic about bundling, Dr. Siegal doubts the model is ready for primetime. “Bundling says, ‘Let’s create accountability for outcomes by not paying for single services but for an entire episode of care,’” he says. But many questions remain unanswered. What constitutes an episode? Who controls the allocation of the Medicare payment? If an episode is defined as 30 days from when a patient enters the hospital for a specific procedure, are other health providers accountable for addressing unrelated complaints within the same episode window?

“There are an enormous number of ways you can contort and twist this so you can create scenarios where people come out of it feeling like they have been penalized for behavior well outside their control,” Dr. Siegal says. “I think those are the big risks: imbalance of power and how do you create lines of accountability that actually make sense?”

But, he says, a system that promotes collective responsibility for patients could create a compelling incentive for more collaboration between physicians and consultants. “I think if ‘done right,’ and I say that in quotations because nobody knows what ‘done right’ means,” Dr. Siegal says, “bundling could actually be huge for hospitalists.”

Mary Dallas, MD, medical information officer at Presbyterian Healthcare Services in Albuquerque, N.M., says she’s seen first hand how collaboration among a health plan, a hospital and physicians can improve quality and balance finances. “Those efforts were really spawned out of a forced alignment between all groups in order to focus on common goals,” she says. Bundling could force a similar convergence of priorities.

Transition Troubles

If “alignment” has become the favorite watchword in bundling discussions, “gainsharing” as a concept has been greeted by far more ambivalence. “I oppose gainsharing that puts money directly into the physician’s pocket,” Dr. Dallas says. “This is something that occurs frequently in the free-market world in other industries, and to pay a few for the success that demands participation of many is just wrong in my book.”

Instead, Dr. Dallas supports the idea of directing monetary rewards toward improving infrastructure and the overall healthcare delivery process. As examples, she suggests using the money to buy time from physicians willing to be involved in pilot projects aimed at improving the delivery process, or to add more resources for better patient continuity between the hospital and the community.

Even with a more equitable distribution of resources, she and other hospitalists concede any transition to bundling could be bumpy. “If I were an independent physician, and my personal payment from Medicare was dependent on or tied to the hospital’s performance,” Dr. Dallas says, “there would be a lot of work to prepare me for this.”

As several hospitalists warn, a bundling system could trigger ratcheting down of care—and a whole new set of headaches. “The concern for everyone is that it is going to incentivize physicians to give less services,” says Jonathan Lovins, MD, director of hospitalist and midlevel practitioner services at the Hospital of Central Connecticut, and the brother of Waterbury Hospital’s Dr. Rachel Lovins.

Several hospitalists say the problem could be similar to what happened with Medicare’s capitation system, which gained traction in the 1980s and peaked in the mid-1990s before waning because of a backlash by both providers and patients. This fixed pre-payment reimbursement system, Dr. Lovins says, created an inherent conflict of interest for primary caregivers because referring patients to specialists for tests lowered profits whereas delivering fewer services did not.

Bradley Flansbaum, DO, MPH, FACP, director of hospitalist services at Lenox Hill Hospital in New York City, goes a step further, calling the bundling plan capitation on steroids, and cautions that a one-size-fits-all system is bound to fail. “Having technology and having the intellectual firepower to figure out how this system is going to manage the bundled payment is an advantage,” he says, adding that larger hospitals are more likely to have this advantage. For rural physicians or those within inefficient networks, bundling payments could be disastrous. “CMS may just say, ‘We’re turning on the lights tomorrow and tough,’ but it’s going to be a hell of a mess if they do,” he says.

A Demonstration Project

A demonstration project slated to begin in four states next year may show just how steep that learning curve is. The Acute Care Episode (ACE) Demonstration would bundle virtually all payments of certain orthopedic and cardiovascular inpatient procedures at participating hospitals in Texas, Oklahoma, New Mexico, and Colorado. Hospitals and physicians still would receive separate fee-for-service payments, but a confidential report would detail their resource use. High-resource providers would incur penalties while low-resource providers would receive bonuses.

Dr. Siegal says it makes sense to begin a bundling pilot project with procedures that have defined treatment windows, such as hip replacements or open heart surgery. Other conditions will be far more difficult to contain within a neatly defined episode. “Clearly, we’re going to have to figure out what to do with heart failure and pneumonia and stroke because those are huge consumers of dollars,” he says.

Despite all the caveats and unknowns, hospitalists still may have much to gain if bundling follows in the footsteps of the successful diagnosis-related group (DRG) payment system. “I think that enlightened hospital CEOs are going to be looking to their hospitalists as their champions to really pull this off and make this work,” Dr. Torcson says, particularly as the stakes for hospitals increase.

Medicare’s Physician Quality Reporting Initiative, established by the 2006 Tax Relief and Health Care Act, already links a 1.5% financial incentive to increased performance. With bundled payments adjusted up or down by the proposed gainsharing and penalties for higher readmission rates, Dr. Torcson says, the equivalent of 3% to 5% of DRG payments could be at risk.

“I think it could be something potentially very beneficial to those hospitalist groups that get it right,” he says. “It’s kind of like before the Ice Age comes, if you’ve got your animal skins ready, those are the tribes that survive.” TH

Gretchen Henkel is a medical writer based in California.

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