Bundled-Payment Program Basics


With general agreement that health-care costs in the U.S. are unsustainable, the Centers for Medicare & Medicaid Services (CMS), through the Center for Medicare and Medicaid Innovation (CMMI), and the private sector are embarking on new approaches to cost containment. On the one hand, we have value-based purchasing (VBP), which rests on the existing fee-for-service system and aims for incremental change. On the other hand, we have accountable-care organizations (ACOs), which provide a global payment for a population of patients, and bundled-payment programs, which provide a single payment for an episode of care. These reimbursement models represent a fundamental change in how we pay for health care.

On a broad scale, ACOs may be further along in development than bundled-payment programs, even though pockets of bundling prototypes have existed for years. Examples include the Prometheus payment system, Geisinger’s ProvenCare, and CMS’ Acute Care Episode demonstration project, which bundled Part A (hospital) and Part B (doctors, others) payments for cardiac and orthopedic surgery procedures. Over the past two years, we have seen a dramatic uptick in bundling activity, including programs in a number of states (including Arkansas, California, and Massachusetts). Here at Baystate Health in Massachusetts, we kicked off a total-hip-replacement bundle with our subsidiary health plan in January 2011.

With most patients in surgical or medical bundles being discharged to home, we now recognize that PCPs will be essential to the success of a bundle.
Opportunities to contribute to bundled-payment programs

Opportunities to contribute to bundled-payment programs

  • Work on teams to develop new care models for the program.
  • Optimize surgical patients preoperatively and comanage in the perioperative period to prevent complications.
  • Aid in ideal care transition from hospital to home or facility.
  • Provide direct post-acute-facility management to ensure ideal recovery and prevent readmissions.
Financial scenarios for hospitalists in bundled-payment programs

Financial scenarios for hospitalists in bundled-payment programs

  • If hospitalists contribute to savings and are eligible to receive shared savings, such savings will represent a new revenue stream.
  • Hospitalists may be on the hook for care and costs over which they have little or no control (e.g. surgical or post-acute ambulatory care).
  • Hospitalists may be left out of bundled payments altogether and be paid solely fee for service.

Perhaps most notably, bundled payments are part of the Affordable Care Act. The Bundled Payments for Care Improvement initiative, launched earlier this year by CMMI, is enrolling traditional Medicare patients in bundled-payment programs across the country at more than 400 health systems.

How Bundled Payments Work

Bundled-payment programs provide a single payment to hospitals, doctors, post-acute providers, and other providers (for home care, lab, medical equipment, etc.) for a defined episode of care. Most bundles encompass at least an acute hospital episode and physician payments for the episode; many include some period after hospitalization, covering rehabilitation at a facility or at home and doctors’ visits during recovery. Bundling goes beyond Medicare’s diagnosis-related group (DRG) payments, which reimburse hospitals for all elements of an inpatient hospital stay for a given diagnosis but do not include services performed by nonhospital providers.

How do the finances work in a bundled-payment program? A single price for an episode of care is determined based on historical performance, factoring in all the services one wishes to include in a bundle (e.g. hospital, doctor visits in hospital, home physical therapy, follow-up doctor visits, follow up X-ray and labs for a defined time period). If the hospital, doctors, and others in the bundle generate new efficiencies in care (e.g. due to better care coordination, less wasteful test ordering, or lower implant/device costs), the savings are then distributed to these providers. What if spending exceeds the predetermined price? In some instances, the health plan bears the financial risk; in other instances, the hospital, physicians, and other bundle providers must pay back the shortfall. Important to note is that all sharing of savings is contingent on attainment of or improvement in demonstrated quality-of-care measures relevant to the bundle. In the future, bundling will evolve from shared savings to a single prospective payment for a care episode.

For now, most bundles encompass surgical procedures, although CMMI is working with health systems on several medical bundles, including acute MI, COPD, and stroke. All of these bundles are initiated by an acute hospitalization. Other types of bundles exist, such as with chronic conditions or with post-acute care only. In Massachusetts, a pediatric asthma bundle is being implemented through Medicaid, covering that population for a year or longer. The aim is to redirect dollars that normally would pay for ED visits and inpatient care to pay for interventions that promote better control of the disease and prevent acute flare-ups that lead to hospital visits.

How Hospitalists Fit In

To date, there has been little discussion of how physicians other than the surgeons doing the procedure (most bundles are for surgeries) fit into the clinical or financial model underpinning the program. However, with most patients in surgical or medical bundles being discharged to home, we now recognize that primary-care physicians (PCPs) will be essential to the success of a bundle.

Similarly, with medically complex patients enrolling in surgical bundles, hospitalists will be essential to the pre- and perioperative care of these patients. Also, transitioning bundle patients to home or to a rehabilitation will benefit from the involvement of a hospitalist.

What You Can Do Today

Although this might seem abstract for hospitalists practicing in the here and now, there are compelling opportunities for hospitalists who get involved in bundled-payment programs. Here’s what I suggest:

Find out if your hospital or post-acute facility is participating in bundling by looking at a map of CMMI bundle programs here: http://innovation.cms.gov/initiatives/bundled-payments;

  • Get a seat at the table working on the bundle; and
  • Negotiate a portion of the bundle’s shared savings on the basis of 1) increased efficiency and quality resulting from hospitalist involvement and 2) hospitalist direct oversight of bundled patients in post-acute facilities (if you choose).

Post-acute care may be new for your hospitalist program. Bundling programs are an important new business case for hospitalists in this setting.

Dr. Whitcomb is medical director of healthcare quality at Baystate Medical Center in Springfield, Mass. He is co-founder and past president of SHM. Email him at [email protected].

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