Bundled Payments – Ho hum or a Seismic Event for Health Care?

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You may not have heard of this…yet…but the health care system had a seismic event in 2015 when the Obama administration mandated a bundled payment model for joint replacement surgery paid for by Medicare. Ho hum, you say? The health care providers involved, physicians, hospitals, labs and post-acute providers to name just a few, aren’t reacting this way. The fee-for-service model that has been used for years and on which our health care payment system depends will become a smaller and smaller part of the pay structure as more and more value based models are implemented. And it is happening now. In December Medicare announced a mandatory bundled payment system for heart attack treatment, bypass surgery and surgical hip and femur fracture treatment covered under Medicare.

What are bundled payments?

Under a bundled payment model providers and healthcare facilities are paid a single payment for all the services performed to treat a patient undergoing a specific episode of care, like joint replacement surgery. Traditionally Medicare would reimburse the hospital, surgeon and anesthesiologist separately for their part in the treatment. With a bundled payment model, Medicare collectively reimburses the providers involved, using a set price for the episode of care, which is usually based on historical costs. Exceeding the pre-arranged reimbursement means the providers bear more cost than they are paid for and if their expenses are less than the set price, the providers get to keep the difference.

The Positives of Bundled Payments

1. Simplification – Straight-forward solution everyone can understand including patiensts. The up-front cost is transparent allowing patients to compare providers and plan a budget.
2. Coordination Among Providers – Providers must work together to provide better quality and efficiency because that is how they will be paid.
3. Quality of Care versus Quantity – Value will win out over volume. Since payment is based on the effectiveness of the full episode, outcomes is the focus.

The Negatives of Bundled Payments

1. Financial Risk to the Providers – Patient compliance and effective service are critical. Care coordination becomes critical if all parties are to succeed financially.
2. Limitation of Applications – Bundled payments work well for surgery because they are clearly defined episodes of care, but not every procedure has such clear end points and results.
3. Payment Distribution – Each provider’s contribution can be different for each patient.

The Trump Effect

Even though the American Medical Association (AMA) has come out in favor of these new payment models and the American Hospital Association (AHA) tentatively supports it, as long as implementation is not too quick, many believe it won’t survive the Trump administration. Tom Price, the recently confirmed Secretary of the Department of Health and Human Services, has been skeptical of mandatory payment reform. Of course early on in his tenure he might be focused on the Affordable Care Act and other Republican hot buttons like Abortion and Stem Cell Research, to spend any time on bundled payments. His impact is probably limited to Medicare bundled payments and there are murmurs in the marketplace of commercial payers implementing their own bundled payment plans.

Interested in learning more or working on bundled payment projects? Contact Smith Hanley Associates Actuarial Recruiting Practice Lead, Rory Hauser, at 203.319-4305 or rhauser@smithhanley.com.


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