Summary of trends: HHS’ Bundled Payments for Care Improvement initiative

June 18, 2012

Back in August of 2011 we wrote  about a new program from the U.S. Department of Health and Human Services (HHS) called the Bundled Payments for Care Improvement initiative that would allow multiple providers to bundle payment for services a patient receives for a single “episode of care,” such as heart bypass surgery or a hip replacement. The program was designed to incentivize health care providers (hospitals, doctors, clinicians, etc.) to work together to reduce costs and provide better care. As part of our ongoing interest in measures to reduce health care costs, we’re posting this summary of trends in bundled payments.

Bundling payments is not a new idea. The first large scale CMS pilot of bundled payments was Medicare’s Heart Bypass Center Demonstration that ran from 1991 to 1996. It saved Medicare over $42 million and saved patients nearly $8 million. It also improved the quality of care and lowered hospital mortality.

Health Care Incentives Improvement Institute (HCI3) recently released a report titled Bundled Payment Across the U.S. Today. They found that the most common reasons for choosing a procedure or condition to bundle are based on cost, how easy it is to define and implement the bundle, and how it aligns with existing initiatives. In the future, bundles may also be influenced by those adopted by Medicare.

Procedural inpatient conditions like hip and knee replacement make good bundle candidates because they are easy to define and standardize. Chronic conditions like diabetes are more difficult to bundle than procedural conditions, but offer the greatest opportunity to generate savings by bundling. Among bundles created by providers and payers in the HCI3 study, there were few for outpatient procedures and none for acute medical conditions.

Bundles are defined by the services include, the time period covered, and patients included.  After defining the bundle, payers and providers negotiate its price. Defining a bundle is complex and can take a great deal of time and effort for providers and payers to analyze and come to an agreement on the final definition. Bundle rates can be defined as risk-adjusted or flat-fee; risk-adjusted rates vary with the severity of the patient’s condition, while flat-fee rates stay the same for every patient.

There are two types of payment bundles, retrospective and prospective, and four broad models for bundling payments. Payers and providers work together to determine the episodes of care and services they want to bundle together based on what works best for them.

1. Retrospective Payment Bundles – Payers & providers set a target price for an episode of care. Participants are paid using the Original Medicare fee-for-service system, and then add an administrative budget reconciliation process at the conclusion of each episode. While some feel this method does not represent true bundled payment, it is used because the technical and administrative infrastructure is already in place for providers and payers. Setting up a “true” bundled payment system would require an expensive investment in changing billing practices. The types of episodes that work for retrospective payment bundles are:

  • Model 1 – Inpatient stay in a general acute care hospital
  • Model 2 – Inpatient stay plus post-acute care
  • Model 3 – Post-discharge services only

2. Prospective Payment Bundles – Payers make a single, prospectively determined bundled payment to the hospital for services furnished. Prospective payment bundles are only available for:

  • Model 4 – Inpatient stay only

Payers send spending reports to providers on a monthly or quarterly basis so providers can keep track of the amount spent on the bundle.  Payments must be reconciled at the end of an episode to make sure claims are associated correctly with the bundle. While quality measures were being used in various ways, only one of the participants in the HCI3 study was using them to adjust payment amounts, because it is difficult to find acceptable quality measures that can be directly tracked to spending.

Risk and savings are used to incentivize providers to increase the success of bundled payments systems. There are three types of savings/risk arrangements.

  1. Shared savings – incentivizes the provider to reduce spending below the negotiated bundled rate by letting them share in the savings.
  2. Shared risk – incentivizes the provider to reduce spending by putting them at risk for costs above the negotiated bundled rate and letting them share in the savings.
  3. Full risk – puts the provider at full risk for all costs above the negotiated bundle rate, but allows them to keep all of the savings.

Bundled payments are gaining in popularity, but the volume remains low because of the high number of exclusions negotiated between payers and suppliers, and issues with lack of continuous enrollment. It may be too early to draw any definite conclusions, but there are early indications that bundled payments have delivered some cost savings. Decreased readmissions, complications and mortality have been reported too. Many are using their early experiences with bundled payments to help them prepare for the future and develop new payment and risk-sharing strategies.

Read the HCI3 report

Bundled Payments for Care Improvement, CMS Innovation

http://www.innovations.cms.gov/initiatives/bundled-payments/index.html

Affordable Care Act initiative to lower costs, help doctors and hospitals coordinate care

http://www.hhs.gov/news/press/2011pres/08/20110823a.html

Visit Extend Health to use the ExtendExchange™ platform – the nation’s largest private Medicare exchange.

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