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Why are Bundled Payment Systems Difficult to Adopt?

The technology aspect of this industry is slowing down the transformation from fee-for-service to bundled payment systems.

By Vera Gruessner

- While bundled payment systems have been advocated as a means to reduce the costs of medical care by the Centers for Medicare & Medicaid Services (CMS), many health insurers and providers are still stuck on fee-for-service payment models. Why is the health payer market finding it difficult to adopt value-based bundled payment systems?

Fee-for-Service Payment Models

Ray Desrochers, Chief Marketing Officer of HealthEdge, told in an interview about some of the older forms of technology still being used in the health insurance industry today, which is making it more challenging to move forward with implementing new models of reimbursement.

“Most of the organizations in the market, whether you like it or not, are still today using 35- or 40-year-old technology. That’s how they’re paying claims. That’s how they’re dealing with enrollment. That’s how they’re dealing with member services,” Desrochers explained.

“As a result of that, they don’t have anything that was built to address the needs of this new healthcare marketplace. They really have a culture that’s built on the one-size-fits-all, fee-for-service models and so they have to fundamentally transform the business including claim processing and everything else they do on a day-to-day basis.”

The Harvard Business Review outlined last month that the first building blocks of bundled payment systems were first described in 1967 within a paper from the University Of Pittsburgh Graduate School Of Public Health. The paper argued that it may be more beneficial to look at an entire episode of care instead of individual healthcare services such as in the fee-for-service payment model.

READ MORE: AHIP Sees 28% Increase in Medigap Enrollment Among Seniors

An episode of care would include diagnosing a problem, identifying the condition, treating the health risk, and other rehabilitative procedures. More recently, in 2012, the Congressional Budget Office released a report stating that bundled payment systems is the only Medicare-based project that has shown real cost savings for the healthcare industry.

If so, then why is it that most healthcare payers are still basing provider reimbursement on a fee-for-service program? The Harvard Business Review claims that many within the healthcare field actually benefit from a fee-for-service payment model and few are willing to give it up.

As stated by Ray Desrochers, the technology aspect of this industry is also slowing down the transformation from fee-for-service to bundled payment systems. When it comes to claims processing, a large number of transactions move through the wiring designed decades ago to view each separate healthcare service and reimburse the designated amount.

“What’s happened here is we have built over many years a decent infrastructure that is really focused on servicing this one-size-fits-all version of healthcare particularly these fee-for-service models,” Desrochers told

“As we start to move into things that are much more individualized, personalized, and customized – that’s both on the benefits and payments side leveraging value-based care benefits and payments as well as the new ACO models and individual market models – we are suddenly in a world where the one-size-fits-all approach doesn’t work anymore.”

READ MORE: Humana Expands Medicare Orthopedic Bundled Payment Programs

“People are seeing that there’s a fundamental disconnect in terms of the technology that’s in the organizations today, which was great in the old days but was never built or designed to handle any of the things we’ve just talked about.”

Older technology is essentially keeping the health payer market from embracing new models of payment including value-based care reimbursement. For instance, CMS announced last July their plan for a bundled payment program among 75 regions called the Comprehensive Care for Joint Replacement Model.

However, this program is limited by “administrative constraints,” which led Medicare to focus on spreading bundled payments among hospital settings because claims systems are unable to process claims outside of hospitals. This stops other joint replacement providers from participating in the program and limits its overall scope.

A report from Avalere Health also found that as many as 75 percent of providers that initially showed interest in the CMS’ Bundled Payments for Care Improvement initiative will be moving forward with embracing the reimbursement strategy.

While CMS may be having trouble spreading the use of bundled payment systems across the healthcare industry, the private sector may be having more success. CIGNA, Horizon Blue Cross Blue Shield, and Blue Cross and Blue Shield of North Carolina are some of the health payers looking for proposals from their vendors to develop systems for value-based payment capabilities.

States like Arkansas, New York, Ohio, and Tennessee are also seeking more transformation in their Medicaid reimbursement solutions including paying for an episode of care instead of a fee-for-service model. It is possible that, over the coming years, there will be enough momentum to truly bring bundled payment systems to the healthcare industry.


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