Basics of Bundled Payments at Hospitals

September 3, 2019

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One form of alternative payment models (APMs) is known as bundled payments. Bundled payments at hospitals provide incentives for providers to shift over to value-based care, designers of the plan worked during and after the run-up to the ACA – Affordable Care Act – a decade ago. This bundled payments model formed to encourage providers to bring forward proficiency and coordination of care while simultaneously remodeling quality and outcomes at much lower costs. But hospital revenue teams know only too well there are pros and cons.

What are “bundled payments”? An overview article at RevCycle Intelligence gives a good definition: “Bundled payment arrangements are designed to pay multiple providers for coordinating the total amount of services required for a single, pre-defined episode of care. The model has been a popular method for embracing value-based care without fully immersing providers in downside financial risk contracts. Under a bundled payment model, providers and/or healthcare facilities receive a single payment for all the services performed to treat a patient undergoing a specific episode of care. An ‘episode of care’ is the care delivery process for a certain condition or care delivered within a defined period of time.”

The risk in bundled payments: An article at NEJM Catalyst makes clear the challenges hospitals face with this approach. “Bundled payments, also known as episode payment models (EPMs), require participant providers to assume risk, as they must cover costs that exceed the target price for an episode of care including those that arise from complications and hospital readmissions. On the upside, providers share in the savings if they keep costs below the target price while maintaining quality standards. Bundled payments are showing significant promise in improving care quality while at the same time bringing costs down.”

We found some more bundled payments challenges laid out in a Health Payer Intelligence article: “Risk plays a role in bundled payment models since hospitals need to manage their spending to account for unexpected treatments such as in the case of a hospital-acquired infection or an implant failure after surgery. As such, bundled payment models are expected to bring high quality care and better patient outcomes.”

  1. Physicians may find bundled payments a rather challenging form of reimbursement since there may be costs associated with a patient’s treatment that are essentially out of their control, according to The American Journal of Managed Care. This payment system could even penalize doctors when it comes to medical costs they could not avoid. Additionally, physicians have little ability to change a patient’s lifestyle or behaviors if the patient doesn’t want to pursue healthier activities on their own.
  2. Another potential problem among bundled payments is the possibility of healthcare underuse. While the fee-for-service payment system incentivizes healthcare overuse or unnecessary, wasteful medical spending, bundled payment models could lead doctors and hospital workers to underuse some needed treatments or diagnostics.

What solutions can payers and providers implement? Michael Ciarametaro and Robert W. Dubois, MD, PhD, of the National Pharmaceutical Council, gave an interview to HealthPayer Intelligence to describe their report published in Health Affairs about how payers and providers can better execute bundled payments. In particular, the researchers looked at how to prevent healthcare underuse when operating bundled payment models.

“We laid out three general principles,” Ciarametaro stated. “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 homogeneous patient populations.”

We found a good overview article on bundled payments at Wikipedia that covers Advantages, Considerations, Design Options, and Disadvantages. We note that one struggle hospital staff continue to face is the evolution of program names and consequent acronyms. For instance, the editors note that bundled payments are also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing. And the “History” part of that article ends with the latest iteration from CMS in effect today, itself introducing new subcategories:

“In January 2018, The Centers for Medicare & Medicaid Services (CMS) Center for Medicare and Medicaid Innovation (CMMI) introduced the successor to the BPCI program, BPCI Advanced, which is a voluntary episode payment model that will start on October 1, 2018 and run through December 31, 2023. According to CMS’ FAQ on the program, ‘There are two categories of Participants under BPCI Advanced: Convener Participants and Non-Convener Participants. A Convener Participant is a type of Participant that brings together multiple downstream entities referred to as “Episode Initiators”—which must be either Acute Care Hospitals (ACHs) or Physician Group Practices (PGPs)—to participate in BPCI Advanced, facilitates coordination among them, and bears and apportions financial risks.’”

R1 has a service focus on Medicare Reimbursement and our seasoned professionals can help you navigate this evolving landscape. Meanwhile, we will keep an eye here with upcoming posts on bundled payments at hospitals with ideas from industry thought leaders on proper reimbursement for all the services and technologies required.

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