A bundle of joy - a primer on bundled payments
Lao Tzu: "A journey of a thousand miles begins with a single step."
Change is always a bit unnerving. Particularly when it is combined with the word mandatory. The Comprehensive Care for Joint Replacement (CCJR) payment model is the beginning of the unavoidable paradigm shift in reimbursement. It states that the federal Medicare program make one bundled payment for each joint replacement surgery performed mandatory in roughly 75 major metro areas. Forget the headline-grabbing stories of major insurance companies merging together. This is health care’s most significant story of 2015.
If we take a trip back in time, 1983 appears to be the inflection point whereby health care spending in the US diverged from the rest of the industrialized world. Since its creation in 1965, the ways Medicare reimburses doctors and hospitals have become the benchmark that most private insurers follow. In 1983, Medicare adopted the AMA’s CPT and DRG codes for the different medical procedures as its basis for compensating physicians and hospitals.
The Medicare payment scheme created one of the most elaborate regulatory systems that our nation has ever seen. Clayton Christensen, a professor at Harvard Business School, suggests that the aforementioned schema has stifled the implementation of standard cost-saving innovations. Innovations that have been successfully implemented in various other industries.
The federal program for seniors is the nation’s largest health insurance program, generating about 40 percent of the average hospital’s revenue. Why bundles now? JK Wall’s beautiful analogy illuminates the current conundrum.
If McDonald’s operated like a hospital, when you ordered a Happy Meal with a burger, fries and drink, you would be charged a separate price for the meat, bun, cheese, pickle, mayo and paper wrapper, the fries, carton and ketchup, the cup, ice and soda. And a separate price for using McDonald’s building to eat.
Then each price would be subject to a different discount negotiated by your nutrition insurance company, rendering all the prices you were quoted meaningless. Not surprisingly, rather than taking your cash at the drive-through window, McDonald’s would have staff members inside each restaurant, beavering away to figure out what you owed. They would take 45 days to figure it out and, only then, mail you a bill.
Why do hospitals function this way? Medicare.
Bundled payments are a great idea, but like all ideas they won’t be equally effective in all settings. In Medicare, there is a compelling case for bundled payments. Variance in post-acute care use is the main factor fueling the delta seen between high and low spending.
However, the plot thickens as we examine private insurers. Here the argument is much weaker. Post-acute care and other ancillary services account for a relatively small share of overall spending on hospitalization episodes, and they account for almost none of the variation in episode spending from one hospital to another. For private payors, Cardiology and orthopedics are the most important contributors to spending, together accounting for 40 percent of spending on all hospitalization episodes.
The bundled payment concept works well for orthopedic surgery procedures because of their straightforward nature. Orthopedic bundles are being developed for the bread and butter inpatient and outpatient procedures (e.g. arthroplasty, ligament repair, arthroscopy). The standard bundle includes preoperative care, post-acute care, and any complications for up to 30 days before and up to 90 or more days after the surgical procedure. If we deconstruct bundles, their main essence driving their efficacy lies in their ability to align incentives across the care continuum. Bundles differ from capitation payments in that providers are only at risk for the defined episode of care and any related complications or readmissions during that period.
Total knee replacement costs (hospitalization, professional fees, and postoperative rehabilitation) constitute the largest single line item for the Centers for Medicare & Medicaid Services (CMS). Although the consensus is that fee-for-service (FFS) won’t go completely away, it will be a progressively smaller part of the payment mix for health care, as payers pursue alternative payment schemes that reward “value.”
Consumers also like the idea of a single payment. Anyone who has had surgery knows firsthand how byzantine their bills can be. Receiving bills for each part of their proverbial hamburger can be a rude awakening.
Bundled payments also enable the patient to understand the total cost up-front and allow them to compare providers on price, convenience, and other services. This transparency is compelling in an era of high-deductible health plans. Another welcome development is the necessary creation of comparable quality metrics that patients can understand and use. Patients can see what they are buying and at what price. The consumerization of healthcare is not stopping, and the more risk the patient takes on vis a vis high deductible plans, the more transparency will be required.
The start-up and administration of bundles can be difficult and costly. Bundled payments require a significant investment of time, effort, and expense. This coordination was once impossible due to a lack access and portability of high fidelity data.
With the focus shifted to outcome/quality and cost, bundles may cause hospitals to engage in cherry-picking patients. Avoiding the complex, ASA 4 and 5 level patients may become an unfortunate side effect of these new policies. . Furthermore, bundled payments will initially work best in areas of high standardization and little innovation (e.g. joint replacement). Implementing bundles in cutting-edge fields like Neurosurgery will be much more difficult. In these fields, utilizing new technology can dramatically decrease morbidity and mortality. Technology may improve the quality of care but can increase or decrease cost.
Implementation logistics also are playing a big role in the rollout bundled payments. CMS itself is the unquestioned leader in the space of bundled innovations. Their Bundled Payments for Care Improvement initiative (BPCI) has four different payment models, three of which can be applied to 48 different patient conditions. That's 145 different payment models. No private health plan has anything close to this. Yet, the biggest barrier preventing more widespread adoption isn’t the CMS itself, but rather the Medicare Administrative Contractors (MACs). You will be surprised to learn that CMS doesn't itself pay claims itself. Rather, it pays claims through MACs. The majority of these MACs have not yet made the investments necessary to implement innovative payment, models. Other health plans haven't either, so switching current MACs to another payment contractor is not a clear option. What is clear is that the tides have turned and the shift to value-based care is unavoidable. Providers that wish to keep their autonomy must ascribe to a new credo, ‘edify or die’.
