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.
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.