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Why Bundled Payments are Essential for Payers to Adopt

Bundled payments are an important strategy for health payers in today's value-based care environment because of cost reduction and a boost in quality of care.

By Vera Gruessner

While the Centers for Medicare & Medicaid Services (CMS) was first to implement bundled payments in one of its many programs meant to renovate provider reimbursement processes, private health payers would also benefit from pursuing bundled payments with their provider network.

Bundled Payment Models

Bundled payments are essentially a form of reimbursement in which hospitals, specialists, and primary care physicians are paid based on an episode of care instead of for a particular service as seen with fee-for-service billing systems. Below are the top two reasons why bundled payments are a useful and essential reimbursement strategy for health payers today.

Bundled payment models reduce costs

According to a study conducted by the New York University’s Langone Medical Center, the CMS bundled payment program aimed at improving treatment for Medicare beneficiaries receiving hip and knee replacement surgeries - called the Comprehensive Care for Joint Replacement program - has brought in cost savings for the federal agency.

Another benefit includes better health outcomes among their Medicare beneficiaries. What the study discovered is that hospital readmission rates declined with the use of bundled payment models. With lower readmission rates, fewer resources and medical services are used. This means that CMS was able to save costs on medical care that would have otherwise been used in a fee-for-service payment system.

READ MORE: Prospective vs. Retrospective Healthcare Bundled Payment Models

“The more we can deliver care outside of the hospital setting effectively, the more we’re going to lower cost, improve satisfaction, and get more value. Defining those services across the continuum, engaging employed physicians as well as independent physicians, and having an evidence-based approach to delivering that set of clinical services is absolutely critical,” Dr. Rita Numerof, PhD, Author, Co-founder and President of Numerof & Associates, told in an interview.

Additionally, many of the latest strategies aimed at bringing value-based care to the forefront go hand-in-hand with several provisions within the Affordable Care Act. For instance, health payers must now cover the costs of preventive care. Health screenings, immunizations, and other preventive services would go a long way to catching disease early and treating patients before their conditions become more severe and costly.

Both bundled payments and many value-based care reimbursement strategies should help health payers reduce their spending. Payers are likely to benefit from collaborating with their provider network and adopting bundled payment contracts.

Bundled payments boost quality of medical care

An additional goal for health payers that goes beyond finances is the strive to ensure their consumer base receives good quality care that prevents worse outcomes. Bundled payments may be able to assist payers in achieving this goal.

READ MORE: Why Payers Should Educate Providers on Value-Based Care

The NYU Langone Medical Center also announced in a press release that the CMS bundled payment model for joint replacement surgeries led to a reduction in the length of hospital stay among its patients.

With lower hospital readmissions and a reduction from 3.6 days at the hospital to only 2.9 days, the transition to bundled payment models has incentivized the medical center to boost the quality of their medical care. Often, fewer readmissions mean that the transition from hospital to home has been improved and medication management is better than before.

Additionally, bundled payment systems can actually contribute to boosting care coordination between hospitals and specialists. The reasoning behind this is that many providers from different stages of treatment and rehabilitation may receive part of the lump sum for an episode of care in bundled payment programs. This may include specialty physicians, home care nurses, and even pharmacists administering medication within the hospital setting.

On July 26, Medicare Rights Center President Joe Baker joined a discussion group with Secretary of the Department of Health and Human Services Sylvia M. Burwell in which they spoke about furthering bundled payment models in the transition from fee-for-service payments to value-based care reimbursement.

“We remain firmly supportive of commitments made by HHS to pay for high-value care—as opposed to high-volume care,” Mr. Baker stated in a press release from the Medicare Rights Center. “Spending fewer Medicare dollars on higher quality care is in the best interest of older adults, people with disabilities, and their families. We welcome the agency’s proposal on bundling for cardiac care and hip surgeries, and we expect to comment on provisions involving beneficiary notice, monitoring for care access, and more.”

READ MORE: CMS Bundled Payment Program Reduces Costs for Consumer

Another important point that the organization stressed is the need to improve patient engagement with the design and operation of new medical care models.

“Engaging patients at every level, including the point of care, within quality improvement efforts, and within program design, implementation, governance, and evaluation, is essential to the success of bundled payment initiatives,” Baker continued. “As part of any new care model, we continue to encourage HHS to embrace shared-decision making and care planning, ombudsman programs, well-designed notices, patient-reported outcome measures, and other tools that facilitate adequate patient and consumer involvement.”

The future of the healthcare industry and the insurance field will depend upon how payers and providers can work together to lower medical spending and innovate through new reimbursement models such as the bundled payment.


Dig Deeper:

Bundled Payment Models Need to Align Payer, Provider Incentives

Why are Bundled Payment Systems Difficult to Adopt?


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