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3 Ways Bundled Payment Models Brought Hospital Cost Savings

Bundled payment models led to cost savings across three healthcare systems.

Bundled Payment Models

Source: Thinkstock

By Vera Gruessner

- Case studies of bundled payment models show significant cost savings among hospitals and both public and private health insurers. The Centers for Medicare & Medicaid Services (CMS), for instance, invested in bundled payment models for lowering the costs of joint replacement surgeries. The CMS program is called the Comprehensive Care for Joint Replacement bundled payment model and was implemented by approximately 800 hospitals around the nation.

Bundled payments for joint replacement

A case study published in the Journal of the American Medical Association Internal Medicine targeted determining the specific factors that reduce Medicare payments and lead to hospital savings in bundled payment models for joint replacement surgeries. Bundled payments provide a lump sum among providers for an episode of care instead of being paid for every service performed.

The researchers found that, out of 3942 patients undergoing joint replacements, hospitals were able to reduce total spending for an episode of care by $5,577. This represents a 20.8 percent decrease in spending within these particular bundled payment models.

The study looks at the quality and savings for bundled payments during hospitalizations and 30 days post-acute care. The researchers also noted emergency room visits, hospital readmissions, and prolonged lengths of stay in the context of hospital savings.

Between July 2008 and June 2015, Medicare spending per episode of care dropped from $26,785 to $21,208. Among 204 joint replacements with complications, the costs decline 13.8 percent.

READ MORE: How to Overcome the Challenges of Bundled Payment Models

Hospital readmissions dropped 1.4 percent while emergency department visits decreased by nearly 1 percent. Additionally, episodes of care with prolonged lengths of stay dropped by 67 percent. Internal cost reductions led to a 51.2 percent rise in hospital savings by 2015.

The investigators uncovered that the hospital cost savings came from lowered prices of implants and supplies while post-acute care facilities decreased spending from shorter stays and patient visits. This shows that cost savings can be achieved without more significant investment in care coordination, the study authors stated.

During the same time period that this study was conducted, joint replacement surgeries in fee-for-service payment structures increased by 5 percent while the bundled payment models were able to increase hospital and post-acute care cost savings.

“CMMI [Center for Medicare & Medicaid Innovation] programs are seeing cost savings,” Dave Terry, CEO of Archway Health, told “A study was reported in 2014 showing they’re seeing savings for many bundles. CMS is pushing forward more bundled payment models because of these cost savings.”

Baptist Health System

Baptist Health System, which consists of five hospitals located in San Antonio, Texas, undertook a bundled payment model to reduce costs and improve quality in joint replacement surgeries, according to The Commonwealth Fund.

READ MORE: Do Bundled Payment Models Pose Complications for Surgery?

“By providing a lump sum for the delivery of all services needed to treat a medical condition or perform a procedure, bundled payment creates incentives for physicians, hospitals, and postacute care providers to collaborate to drive down costs and improve quality,” according to the study.

“Many bundled payment programs have failed to gain traction, however, partly because they require significant physician buy-in and behavior change. The authors of this Commonwealth Fund–supported study describe how Baptist Health System, which comprises five hospitals in San Antonio, Texas, gained physician support for a bundled payment program focused on joint replacement procedures.”

Baptist Health began by recruiting orthopedic surgeons using a strategy that protected them from downside financial risk. The healthcare system ensured 100 percent of their fees under Medicare rates while rewarding surgeons with the opportunity to earn bonuses up to 25 percent. Bonus checks were delivered on either a quarterly or monthly basis.

The health system also sent summaries of cost and quality data to physicians to show them more opportunities for cost savings and quality improvement. Additionally, Baptist Health established greater transparency on individual provider performance.

Two standards for quality care benchmarks were used: one for individual physicians and another for the entire group. This gave high performing physicians a stimulus to help their teammates in improving the quality of care and meeting cost reduction benchmarks.

READ MORE: CMS Bundled Payment Models Cut $864 for Orthopedic Care Episode

Baptist Health was able to garner $6.1 million in cost savings or $284 per joint replacement surgery in the bundled payment model, The Commonwealth Fund reported. The bundled payment program has now been expanded at Baptist Health to include treatment for additional medical conditions.

NYU Langone Medical Center

The Association of American Medical Colleges reported on how the NYU Langone Medical Center participated in the CMS Bundled Payment for Care Improvement initiative. Joe Bosco and Rich Iorio of New York University (NYU) Langone Medical Center discussed their experience with the Bundled Payment for Care Improvement initiative and their belief that bundled payment models would allow them to improve the quality of patient care.

“For CMS, the biggest challenge was starting the BPCI program. The first proposals came out in 2011 but it was finalized only in late 2013,” said Terry. “The design, reconciliation, and sharing data were some of the challenges CMS encountered that are now reconciled. CMS spent time making sure providers have scale.”

“Getting commercial plans climbing, learning scale and deciding on which episodes and which definitions to follow [is important] as well as creating provider networks,” he continued.

The biggest barrier the medical center faced in moving forward with the bundled payment model was the large number of staff members needed to better coordinate care. The number of clinicians and providers varied from home health professionals, nurses, and social workers to physical therapists and care management specialists.

The bundled payment program led the NYU Langone Medical Center to transform its organizational alignment so that more staff members were connected and coordinating care for the patient community. The first steps that NYU Langone Medical Center took in building the infrastructure related to their bundled payment model includes establishing the care management framework.

Care management involves managing patients both during the hospital stay and at post-acute care facilities. NYU Langone Medical Center has also begun using home health agencies to reduce costs and allow patients to recover more quickly at home.

The medical center now uses risk-factor identification and mitigation processes to reduce the likelihood of complications during surgery. This may include assisting with smoking cessation, diabetes management, or weight loss prior to joint replacement surgeries.

Iorio and Bosco urge for the healthcare industry to expand transparency so that more stakeholders can learn which facilities established savings and which saw losses as well as what medical conditions bundled payment programs were used to treat.

Through the bundled payment model, the NYU Langone Medical Center has improved patient outcomes, healthcare access, and patient education. The results from multiple case studies show that healthcare bundled payment models are able to bring in greater cost savings and improve the quality of patient care.


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