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Bundled Payments Benefit Payers, Increase Quality of Care

By Sara Heath

Bundled payment systems are creating a lot of buzz in the healthcare industry as payers move away from fee-for-service payments and toward value-based payments. But what are bundled payments, and what effects do they have on the healthcare industry?

bundled payments benefit payers and coordinated care

A recent Rand report written by John Bertko and Rachel Effros seeks to answer the above question, and discusses many of the finer points of the system, which include cost reductions, efficiency increases, its relationship with value-based payment and coordinated care, and the kinds of treatment that may be covered under bundled payments.

Bundled payments shift the financial risk to the providers

According to Bertko and Effros, a large financial implication of bundled payment is the shift of financial risk from the health insurers to the providers. Because providers are held liable for the cost of procedures or preventable complications that exceed the parameters of the bundled payment, they are assuming the risk of the entire episode of the care.

This is good news for health insurers as they no longer assume costs accrued due to complications in the episode of care. Instead, payers administer retrospective payments to providers which cover entire episodes of care over specific time periods, and then providers absorb any additional costs.

READ MORE: Minn. Healthcare Payers Reported $687M in Financial Losses

Bundled payments are expected to reduce hospital spending

One of the main benefits of bundled payments is the potential cost cuts the system could bring. According to Bertko and Effros, bundled payments will reduce the number of unneeded procedures performed as well as any wasted, unnecessary resources.

However, in the initial phases of bundled payments, it is difficult to measure just how much money will be saved. The report states that since bundled payment systems are voluntary, it is likely that most participating providers will be ones who typically outperform others and spend less money. Therefore, the percent decrease in savings will likely be smaller because there will be less room for improvement.

Increased efficiency may be another byproduct of bundled payments. Since physicians will be receiving a flat fee for the service they provide, they are incentivized to make sure they provide that service in the most efficient way possible. This means that physicians will be more likely to eliminate any procedure that is not completely necessary. Bundled payments also incentivize coordinated care, and this increased collaboration could help increase physician workflow.

Bundled payments work best alongside quality care standards

READ MORE: Payer Groups Urge Congress to Keep ACA Cost Sharing Reductions

Care coordination and value-based pay are vital in ensuring the success of bundled payments, according to the Rand report, and therefore are being implemented in bundled payment programs. While supporters of bundled payments, such as the National Partnership for Women & Families, praise the method’s success in increasing coordinated care and value-based payment models, they recognize the need for quality standards.

“...it is essential, in this and other models, that transparent quality metrics and patient-reported outcomes be used to help gauge success and ensure that the quality and experience of care is improving and producing better outcomes for patients,” said Debra L. Ness, President of the National Partnership for Women & Families.

By incorporating those patient-centered practices into bundled payment programs, physicians will see the most success in delivering high-quality, coordinated care to their patients.

Not all treatment is suited for bundled payments

Implementing bundled payments comes with various logistical issues, most notably the issue of which services work best for the system. The Rand report makes it clear that not all episodes of care are suited for bundled payments. For example, a fairly standard procedure like a hip replacement may lend itself to a standard linked payment. However, treatment for complications of a chronic disease such as diabetes can be more unpredictable, and therefore it would be harder to create a standard linked fee under bundled payments.

READ MORE: BCBS of Minn. Cites Risk Pools for $322.4M in 2016 Losses

The varying severity of conditions is another substantial issue. Continuing with the above example, there may be a hip replacement patient who requires more extensive rehabilitation than others, thus extending the services covered under the bundled payment. Payers would have to account for those differences when developing bundled payment systems. The Rand report states that if there were no such system, physicians would not be incentivized to provide the highest quality treatment to the sickest patients who may require more services.

As of present, bundled payments are still in developmental phases, being piloted in various forms by the Centers for Medicare & Medicaid (CMS), and other programs. Some other programs have not been as successful as hoped. For example, a number of participants in the Integrated Healthcare Association’s pilot have not completed the program, or opted out because program goals were too ambitious.

However, pilots still have some proponents, like Ness, who state that with more government funding and support, these programs can be developed and begin to revolutionize patient-centered care.

“...it is essential that Congress continue funding CMS to develop and test these new models of payment, so that we can continue moving toward a health care system that is truly patient- and family-centered,” Ness said.

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