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How to Prevent Healthcare Underuse in Bundled Payment Models

Payers and providers must prevent the potential for bundled payment models to lead doctors and hospitals to refuse care for the sickest patients with the most complex cases.

By Vera Gruessner

Value-based care reimbursement including bundled payment models or accountable care organizations may help medical providers and payers achieve the Triple Aim of Healthcare which is better patient care, stronger population health outcomes, and reduced medical spending.

Value-Based Care Reimbursement

However, value-based care reimbursement and bundled payment models have the potential to lead to the underutilization of medical services since payment is based on  reducing the amount of time a person spends in a medical facility or hospital as well as increasing the chance of complications from surgery or other medical treatment.

Payers and providers must prevent the potential for bundled payment models to lead doctors and hospitals to refuse care for the sickest patients with the most complex cases. One study published in Health Affairs clarifies the number of steps that health insurers and providers can take to prevent any negative consequences from bundled payment models and embrace solely the benefits of value-based care reimbursement.

For more information regarding the steps payers and providers should follow to improve the execution of bundled payment models, spoke with the study’s authors: 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. How can health payers and providers form bundled payment contracts that minimize negative consequences of bundles?

READ MORE: Humana Expands Orthopedic Bundled Payment Program to NC, VA

Michael Ciarametaro: “We laid out three general principles. 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 reality is that most treatment is not homogenous. The principle focuses on addressing that clinical variability and treatment-driven variability. When thinking about these payments, you need to adjust for the clinical portion of that using risk-adjustment. There are various types of risk adjustment out there from the formal methods that CMS uses to episode-based payments.”

“The other things you can do are carve outs. 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.”

READ MORE: Humana Expands Medicare Orthopedic Bundled Payment Programs

“The final point really focuses around quality metrics. You need to have quality metrics in place to ensure appropriate care. Just because you pay somebody adequately doesn’t mean they will necessarily deliver the services. Bundled payment by its nature reduces visibility into the care delivered. It is of the utmost importance to put the quality in place. As part of that, it’s making sure you have incentives around those that are adequate.”

“Typically, a lot of quality metrics are only reimbursed 1 to 2 percent. The other thing is you shouldn’t put bundled payments in place where there aren’t adequate quality metrics. A lot of the traditional chronic diseases like diabetes and hypertension have really well-established thresholds that allow adequate monitoring but a lot of the specialty-treated diseases like multiple sclerosis, oncology, and rheumatoid arthritis don’t have adequately established quality metrics in place.” What are some steps health payers can take to ensure providers are adequately reimbursed in a bundled payment model?

Michael Ciarametaro: “There are a couple of things they can do. The first part in designing the actual bundled payment, they need to go back and look at what the historical reimbursement has been for said services. Then they can begin to identify a target payment based on that. From there, they really need to work with the provider community to come to agreement and terms of how the reimbursement will work and understand how that risk adjustment will work around that central bundled payment amount.”

Robert Dubois: “The points that we brought out in the article really are the keys to proper amounts of reimbursement. Your bundle needs to encompass all the things that would lead to good patient outcomes. Let’s say you had a bundle for back pain. You gave a fixed amount of money and you thought to have good outcomes with back pain, a certain number of patients will need MRI scans so that cost needs to be factored in. Some patients also need physical therapy. So you would want to make sure that all the pieces of the puzzle that will help the patient to do well are in the bundle.”

“If you made a bundle and you said that you will only pay for the office visit, an occasional MRI scan, and really rare surgery to average it out into the bundle but you left out this important piece of puzzle, which is physical therapy, then you are paying the provider group less than what might be needed to achieve optimal care.”

“When you develop a bundle, you want to make sure you list all the proper things that patient may need and make sure they’re included in the bundle. The other way to pay people properly is to make sure that there aren’t extreme cases mixed into the bundle.”

“You might want to exclude the small group of outlier patients. Similarly if there is lots of heterogeneity, it makes sense to keep these cases in one bundle. You want to have a bundle that is relatively homogenous so you wouldn’t want to lump acute and chronic back pain together into the same bundle.” In your bundled payment study, what is the most important point that health insurers should pay attention to?

Michael Ciarametaro: “The most important point and the key takeaway is you should be starting with disease areas that are very well understood and have well-established quality metrics in place. That way you have the appropriate protection mechanisms there for patients who are the vulnerable stakeholders. Moving forward from there, as we get better at quality metrics, develop more robust metrics, get a better handle on risk adjustment, then you can move into other areas. For the time being, you need to stick to the areas that we know well.”

Robert Dubois: “ I would add one other thing. The fee-for-service model has the incentives to do more and more and more. The patient comes in with back pain and you think, ‘I own part of an MRI scan machine. I think you need an MRI scan because I also get a percentage of that. Then I have physical therapy in my office and I can charge for each visit and each injection. So in fee-for-service, you are likely to have potentially  an overuse of services.”

“When you go to bundled payment and you give a fixed amount of money to a provider group to do the best they can to take care of the patient. Then you explain that the more they do, the less money they make. Then you’ve created a potential from moving from overuse, which fee-for-service causes, to underuse where bundled payment may lead to that.”

“I would say that one of the critical elements that payers need to keep in mind is that, as you change the incentives you make for providers, providers are petty savvy and will adjust their practice accordingly. To protect the patient, you want to make sure  that you’re looking carefully that we haven’t moved from a world of overuse to a world where the patient is not getting enough to get proper care.”

“One of the ways to protect from underuse, is to have good quality measures or outcome measures so you can say whether a bundled payment program leads to better outcomes or whether patients are getting worse. They need to keep a close eye on concerns about too little care as we move into this new financial model.” How should quality metrics be incorporated into a payment contract in order to create a successful bundled payment model?

Michael Ciarametaro: “There are basically three elements to this. The first is you shouldn’t set up a contract or bundled payment in an area that doesn’t have quality metrics. The second is this idea that a physician shares anywhere from 50 to 100 percent of the savings resulting from bundled payment. That incentivizes doctors to reduce care.” 

“Typically, these quality metrics are only incentivized at 1 to 2 percent. You’re heavily skewed towards underuse without the financial incentives around appropriate care. An appropriate system would give more weight to quality metrics in measuring outcomes and assign appropriate incentives toward that.”

“What that particular number is is still to be determined, but it’s going to be closer to what their incentives are for underuse. The final point is when you think about designing quality metrics, you must think about underlying incentives. We provide an example in the paper around diabetes care. Let’s say a particular quality threshold is set at 7 percent and the physician is rewarded for all those patients that get below that 7 percent metric. Essentially, what you’re doing is that you’re incentivizing the physician to focus on the patient subset even though there’s tremendous clinical benefit to be gained from others. So you need a more comprehensive approach that looks at multiple thresholds for any given quality metric or an approach that looks at incremental changes in quality metrics or a combination of the two.”


Dig Deeper:

Bundled Payment Models Need to Align Payer, Provider Incentives

Top Challenges of Alternative Payment Models, Bundled Payments


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