Healthcare IT Interoperability, EHR interoperability, Hospital Interoperability


How to Overcome the Challenges of Bundled Payment Models

Physicians may find bundled payments a challenging form of reimbursement since there may be costs associated with a patient’s treatment that are out of their control.

Source: Thinkstock

Bundled payment models are a form of reimbursement between payers and providers that adheres to an episode of care instead of payment for a particular medical service. This reimbursement system was created to transition healthcare providers from the fee-for-service model to more value-based care payments in order to reduce some financial responsibility from payers to providers.

Risk plays a role in bundled payment models since hospitals need to manage their spending to account for unexpected treatments such as in the case of a hospital-acquired infection or an implant failure after surgery. As such, bundled payment models are expected to bring high quality care and better patient outcomes.

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What federal programs consist of bundled payment models?

The Centers for Medicare & Medicaid Services (CMS) has invested its time and resources into expanding upon bundled payments. The federal agency introduced the Medicare Bundled Payment for Care Improvement (BPCI) initiative in October 2013.

A number of different medical facilities are participating in this particular program including post-acute care centers, hospitals, and physician groups. This bundled payment program includes four different systems of reimbursement in which payments are tied to multiple services Medicare beneficiaries receive during an episode of care.

The first system consists of paying hospitals for an inpatient, acute care stay. The second and third models are based on a retrospective bundled payment platform that looks at spending against a set price for an entire episode of care.

CMS also initiated the Comprehensive Care for Joint Replacement (CJR) model to cover the expenses of hip and knee replacement surgeries among Medicare beneficiaries. Through bundled payment models, hospitals, physicians, and post-acute care centers are meant to work in coordination to treat a patient before, during, and after a joint replacement surgery in order to receive payment for an episode of care.

With hip and knee replacement surgeries becoming one of the most expensive and most common operations among Medicare beneficiaries, it is understandable that CMS has pursued an alternative payment model to cover these expenses. In 2014, more than $7 billion was spent just on the hospitalizations associated with joint replacement surgeries.

The median costs for joint replacement surgery among Medicare beneficiaries
The median costs for joint replacement surgery among Medicare beneficiaries

Source: Agency for Healthcare Research and Quality

The quality and cost of care also varied tremendously between hospitals due to acquired infections or surgical implant failures. As such, bundled payments are thought to bring more incentive to improve quality and reduce wasteful spending such as on unnecessary diagnostic tests.

The proposed rule for the CJR model came out in July 2015 and the program went into effect on April 1, 2016. This program covers the costs associated with having a beneficiary admitted into the hospital, undergo surgery, and receive post-acute care services during the recovery period for 90 days after the operation. This 90-day period is considered an episode of care and a bundled payment is given for the entirety of the medical services provided during this time.

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What are the biggest challenges facing bundled payment models?

Physicians may find bundled payments a rather challenging form of reimbursement since there may be costs associated with a patient’s treatment that are essentially out of their control, according to The American Journal of Managed Care.

This payment system could even penalize doctors when it comes to medical costs they could not avoid. Additionally, physicians have little ability to change a patient’s lifestyle or behaviors if the patient doesn’t want to pursue healthier activities on their own.

For instance, diet, physical fitness, and even medication intake as prescribed is highly dependent on the adherence of the patient. Doctors do not have control over their patients’ behaviors. Additionally, some patients have multiple medical conditions and may be high risk, which could lead to side effects and health issues outside of the doctor’s jurisdiction.

When payers transition to new reimbursement structures such as the bundled payments, they often find their older technological platforms standing in the way as well as the lack of data and reporting functions necessary to operate in the new reimbursement landscape, said Chip Howard, Vice President of Payment Innovation at Humana.

“There are obvious challenges that come with making such a big transition. A couple of challenges include infrastructure, data, and reporting that, frankly, were not needed in the fee-for-service world. Providers absolutely have to have that to be successful in the value-based world,” Howard told

“Producing a robust set of reports and data for the providers to be able to show them there are opportunities for quality improvement, outcome improvement and cost efficiencies [is key].”

Another potential problem among bundled payments is the possibility of healthcare underuse. While the fee-for-service payment system incentivizes healthcare overuse or unnecessary, wasteful medical spending, bundled payment models could lead doctors and hospital workers to underuse some needed treatments or diagnostics.

For instance, payment in bundles is associated with keeping patients out of the hospital, which means that some patients may be discharged before they are ready. Additionally, providers may be less likely to manage the treatment of complex cases if their reimbursement is subpar, which could essentially block healthcare access for the sickest patients.

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What solutions can payers and providers implement?

Michael Ciarametaro, the Director of Research at the National Pharmaceutical Council, and Robert W. Dubois, MD, PhD, the Chief Science Officer and Executive Vice President of the National Pharmaceutical Council, spoke with to describe their report published in Health Affairs about how payers and providers can better execute bundled payments. In particular, the researchers looked at how to prevent healthcare underuse when operating bundled payment models.

“We laid out three general principles,” Ciarametaro stated. “In terms of setting up the contracts, they need to be designed in a way that provides adequate reimbursement to achieve the optimal outcomes. There are four pieces under that. The first one is providing sufficient reimbursement for all the services and technologies required. The second is reimbursing for an appropriate clinical time-frame. If you’re too short, you tend to focus on practices instead of outcomes.”

“The third is to recognize that clinical practice evolves pretty quickly, which means adjusting payment to adjust to those evidence-based practice changes whether it means doing things differently or whether to adopt new technologies. The fourth step is to focus on homogenous patient populations.”

“The other things you can do are carve outs,” he continued. “If you have particular drugs or services that are expensive and highly variable, it may make sense to exclude those from the bundles.”

“The last thing is outliers. You’re always going to have outliers and those cases that are catastrophic. There needs to be a process in place to deal with that."

"The final point really focuses around quality metrics. You need to have quality metrics in place to ensure appropriate care.”

Dig Deeper:

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How do bundled payments benefit the healthcare industry?

Bundled payments provide a clear benefit for payers in the world of healthcare revenue and reimbursement. What happens is that bundles essentially shift financial risk and responsibility onto the provider and away from the payer.

All complications a doctor may face must be covered by the medical facility as well as the general costs of a treatment or test. Along with this benefit to payers, bundled payment models are expected to reduce overall hospital spending.

Providers who participate with public or private payers in implementing the bundle are likely to see cost savings. Hospitals and physician groups may also exhibit more efficiency when implementing bundled payments since fewer wasteful and unnecessary services will be provided. The quality of medical services is also likely to improve.

Essentially, payers and providers partnering together to integrate bundled payment models in a value-based care environment are likely to see significant benefits to the quality of patient care and outcomes as well as a general downward pressure on healthcare spending.

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