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Are Bundled Payment Models or Capitation the Better Choice?

Healthcare payers will need to consider the risks of capitation payment and bundled payment models when deciding which reimbursement structure to implement.

Bundled Payment Models

Source: Thinkstock

By Vera Gruessner


- Today, healthcare payers have multiple ways to reimburse providers for performing medical services that move away from the traditional and more costly fee-for-service reimbursement system. Two such possibilities include capitation payment and bundled payment models.

Capitation payment is based on targeting population health management, according to the Harvard Business Review. Today, a number of different payment strategies such as accountable care organizations, shared savings programs, and pay-for-performance contracts have been integrated among payers and providers as a way toward capitation.

Through capitation payments, payers no longer reimburse providers for every service completed as in the fee-for-service payment model. Instead, shared savings programs reward physicians for lowering the cost of care as well as improving quality. The way quality is measured depends upon health outcomes, patient satisfaction, and clinical compliance. 

To receive bonuses through capitation, providers move to reduce the average cost of care by reducing hospital readmissions, shortening the length of hospital stays, and reducing the use of unnecessary testing.

The Harvard Business Review outlines some of the issues surrounding capitation payments. For example, providers are positioned to manage population-level outcomes and do not put as much focus on quality improvement targeting the patient-level.

READ MORE: CMS Bundled Payment Models Lead to Greater Patient Selectivity

Patients are more interested in treatments that address their needs, which means the outcomes for heart failure patients don’t correlate to the needs of colon cancer patients. In the primary care sphere, patients’ health status or disabilities vary greatly as well, which is where capitation payment fails on the patient level.

Additionally, the report claims that capitation payment moves the risk for managing the cost of a population onto the provider, which hospitals and clinics would only have limited control over. The report authors assert that payers should take on this financial risk because they cover a larger and more complex patient population than a physician’s office manages.

Another issue surrounding capitation payments revolves around patient choice. Capitated payment systems lead to narrow networks and often require patients to use in-house providers instead of going outside of their healthcare organization. 

Payers and providers facing some of these challenges from capitation payment may consider adopting bundled payment models instead. Paying for an episode of care through bundled payment models instead of reimbursing individual services provides greater care coordination among medical teams. In the past, many surgeries relied on bundled payments since multiple experts complete various procedures during a surgery.

“Bundled payments are triggering a whole new level of care innovation. For example, hospital-based physicians are remaining involved in care after patients are discharged. Hospitalists are added to teams to coordinate all the inpatient specialists involved in the care cycle. Nurses make sure patients fill their prescriptions, take medications correctly, and actually see their primary care physician,” according to the Harvard Business Review.

READ MORE: The Role Risk Plays in Value-Based Care Reimbursement Models

“And navigators accompany patients through all phases of their care and act as first responders in quickly resolving problems. Bundled payments are also spurring innovation in the creation of tailored facilities, such as those of Twin Cities Orthopedics (Minneapolis), which performs joint-replacement care in outpatient surgery centers and nearby recovery centers, rather than in a traditional hospital.”

Payers will need to pick the right partners when creating bundled payment contracts, said Michelle Lobe, Vice President of Network Strategy and Innovation at UnitedHealthcare.

“For other health plans and payers, my advice would be to really pick partners who are very interested in value-based programs and collaboration because these programs are not easy to stand up. You really have to have a good partner very willing to work with you on new payment methodology and data sharing,” Lobe told last month.

Healthcare payers and providers looking to succeed in bundled payment models must meet five criteria, according to the report. First, payment should encompass the entirety of treatment needed to heal a patient’s condition. This should include an entire episode of care starting with a hospital admittance and continued until discharge from a post-acute care setting.

The second condition for bundled payment models involves paying for good outcomes. Payment should be dependent upon the right health outcomes such as returning a joint to normal function or decreasing pain.

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

Patient risk factors will also need to be taken into account when creating a bundled payment contract. Age, health status, and social issues will all impact health outcomes and contracts should reflect risk factors when providers take on more difficult cases.

Additionally, the bundled payment should cover the entire cost of the episode of care with the potential for a bonus if the providers perform efficient and effective procedures. Any unnecessary services, however, do not need to be covered under a bundled payment model.

The final point for a successful bundled payment model involves not holding providers financially accountable for treating unrelated or catastrophic situations. For instance, if a patient ends up in the emergency room for an unrelated problem during an episode of care, the provider would not be held responsible financially for treating this particular case.

Healthcare payers looking to transition to value-based care reimbursement will need to consider the benefits and risks of both capitation payment and bundled payment models.


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