Bundled Payment System
The system in which we pay for healthcare in the United States is problematic and has received much criticism. The “fee-for service” payment is a common method used to incentivize providers
for volume rather than the quality of service they provide. Though it plays a dominant role in the way we pay for health care in the United States, this method lacks efficiency and is very costly.
Policy makers would like to do away with the fee-for-service payment system and are advocating for change. Their goal is to reward providers for delivering higher standards and quality of
care while improving overall outcomes with greater efficiency and lower costs. Many initiatives have gained much publicity under the new healthcare reform since the passing of the Patient
Protection and Affordable Care Act of 2010.
The bundled payment approach is an alternative payment method that gives providers a single payment for all services rendered to a patient for specific treatments or conditions, which can
span multiple providers in various settings. In August of 2012, The Department of Health and Human (HHS), along with Centers for Medicare and Medicaid Services (CMS) officially launched the
Bundling Payments for Care Improvement initiative with four different models set to be tested. The goal for this program is to align payments for hospitals, physicians, and all other healthcare
service providers across the entire episode of a patient’s care plan, in place of the “fee-for-service” approach of itemizing services separately (Herman, 2011). Under this payment method,
providers would assume financial risks for all costs related to services for a specific treatment or condition, including costs related to preventable complications (RAND Corporation, 2014).
Bundling payments offers a promising solution for cost containment in healthcare, which could eliminate inefficiencies in our current fee-for-service payment system. According to Francois de
Brantes, executive director of Health Care Incentives Improvement Institute, the bundling payment pilot gives a unique opportunity to effectively collaborate services such as orthopedic or
cardiac surgeons for hospitals that don’t employ these specialties. A bundled service between hospitals and surgeons working together could ultimately reduce costs per episode and increase
fee schedules. Additionally, the integrated bundling method shows promising incentives on better managing of supply chain costs, reducing waste, and preventing complications (Herman, 2011).
Through careful review of existing payment models, it is apparent that adopting a bundled payment system will not only improve the overall quality of care, but also reduce healthcare costs.
Healthcare Reform
The World Health Organization published a report in 2000 that ranked the United States 37th in overall health care among 191 member countries’ health systems. The most notable factors for
this ranking include the lack of access that Americans have due to lack of health insurance. The United States spends far more in health care per capita at $8,895 and 17.9% of GDP than any other
country in the world. Additionally, they were ranked last in overall costs and quality of care (WHO, 2012). Without proper health care reforms in place, the cost of health care will continue to rise
in the United States.
In 2010, the Patient Protection and Affordable Care Act (ACA) was enacted with the goals of providing high quality and affordable health care insurance, expanded coverage, lower health care
costs for the overall population and government, and by reducing the uninsured rate of all legal citizens (Medicaid.gov, 2014). The passing of the ACA has allowed for the formation of the Center
for Medicare and Medicaid Innovation, also known as the Innovation Center, under the Centers for Medicare and Medicaid Services (CMS). The purpose of the Innovation Center is to test new
payment and delivery models. They are responsible for identifying, developing, and assessing new models that might lower health care related costs while improving overall quality. The
specific aims of the Innovation Center are to improve the individual experience of care for patients, improve the health of populations, and to reduce the per capita cost of care for populations
(Berenson & Cafarella, 2012).
Types of Payment Systems
Fee-for-service. The most commonly used method of reimbursement in United States for health care is the “fee-for-service” payment system. In this model, providers receive a fee for each
service performed, such as a test, procedure, office visit, or other health care services. Providers receive payment after the services have been delivered. The fee-for-service mechanism is a
leading driver responsible for the high health care costs in the United States. This model incentivizes providers for increasing the volume and costs of services they provide. Additionally, it
encourages them to duplicate services and promotes inefficiency in the delivery of care to patients. It also discourages providers from coordinating care with healthcare professions.
Comprehensive care payment. The Comprehensive care payment is also known as the condition-adjusted capitation or risk-adjusted global fees. Under this model, a single price is paid for all
healthcare services needed by a certain group of people for a fixed period of time. For example, a single price for employees of an organization over one year or a specific group of people who
suffer from chronic diseases. The objective of the Comprehensive Care Payment plan is to encourage physicians to reduce the number of episodes of care patients need by maintaining their
health and keeping them out of the hospital. This payment plan also gives providers the ability to choose the health care services a patient needs and the immediate resources necessary to
deliver them. However, because the Comprehensive Care Payment is drastically different from the way providers are currently paid, it may not be widely accepted. Since this method of
payment can be associated with the problematic capitation payment system in 1990, many providers question if it can remain viable without causing resistance from patients and financial
issues for providers (Center for Healthcare Quality & Payment Reform, 2014).
Bundled payment. The bundled payment, also referred to as episode-based payment, is a single payment system for all healthcare services tied to a specific treatment or condition. This
payment can be spread among multiple providers in multiple areas. Under this model, physicians are responsible for all financial risks related to the costs of services for a specific treatment or
condition, as well as the costs associated with preventable complications (RAND Corporation, 2014). For example, all providers would receive a single payment for all inpatient and outpatient
care delivered to a patient after suffering a heart attack. This type of payment gives providers the flexibility to choose the treatment plan for their patients and avoid restrictions imposed by
fee codes and amounts (Center for Healthcare Quality & Payment Reform, 2014).
CMS has created four different bundling models that have began a pilot study in late 2011. In model 1, the episode of care for an inpatient in general acute care will be paid directly to hospitals,
while physicians would be paid separately by Medicare based on the physician fee schedule. Hospitals and physicians will be able to share gains that result from better care coordinated. Model
2 and 3 include physicians’ services, post-acute providers, related readmissions, and ancillary services. However, in Model 2, episodes would include inpatient and post-acute care ending in a
minimum of 30 days after discharge. Model 3 covers inpatients and post-acute care discharged after 30 days. Any reductions in expenditures will be paid directly to participating providers.
Finally, in Model 4, CMS would create a single bundled payment to the hospital encompassing all services provided, where physicians and practitioners would submit a “no-pay” claim to
Medicare and the hospital would pay out the physicians out of the bundled payment (Herman, 2011).
CMS has allowed the flexibility for hospitals to design their own bundling packages. This has provided entities the opportunity to capitalize on performance and work they have done. But with
the flexibility of structuring ones own bundled package comes financial uncertainty. Hospitals forming their own packages have little guidance on what the actual gain or losses would be for a
particular service bundle (Herman, 2011). As reimbursements with regard to hospital readmission remain problematic to the system, another challenging area hospitals will face when structuring
their bundling packages is how to factor in the extra cost accumulated for a readmission of a patient with the same ailment as their previous episode. In a report published by the Agency for
Healthcare Quality and Research, the hospital readmission rate of 2006 costing $30.8 billion could have been avoided (Butcher, 2009). What advocates are saying is that bundled packages are a
step toward fee-for-value, and that quality care could substantially reduce the number of patients readmitted (Herman, 2011).
Despite the challenges forthcoming, the initiative provides promising incentives health care reimbursement and delivery. It has the ultimate ability to enhance the health care system to
deliver quality care with coordination of departments within the system. It encourages providers to practice integrity in practice and increase the use of standardization in delivery, and it also
accomplishes cost savings from elimination of duplicate and unnecessary tests and procedures (Herman, 2011.) All of these incentives combined provide attributes to an ultimately efficient and
practical method in reducing the cost of healthcare overall.
References
Berenson, R., and Cafarella, N. (2012). The center for medicare and medicaid innovation. Robert Wood Johnson Foundation. Retrieved July 22, 2014 from http://www.rwjf.org/en/research-
publications/find-rwjf-research/2012/02/the-center-for-medicare-and-medicaid-innovation.html
Butcher, L. (2009), How to Save a Bundle on Hospital Admissions, Managed Care, Retrieved on July, 24, 2014 from http://www.managedcaremag.com/archives/0907/0907.readmissions.html
Center for Healthcare Quality & Payment Reform. (2014). Transitioning to episode-based payment. Retrieved July 22, 2014 from http://www.chqpr.org/downloads/TransitioningtoEpisodes.pdf
Center for Healthcare Quality & Payment Reform. (2014). Transitioning to comprehensive care payment. Retrieved July 22, 2014 from
http://www.chqpr.org/downloads/TransitioningtoComprehensiveCarePayment.pdf
Herman, B., (2011), The Advantages and Disadvantages of CMS’ Bundled Payment Initiative: 8 Responses, Becker’s Hospital Review, Retrieved July 24, 2014 from
http://www.beckershospitalreview.com/hospital-physician-relationships/the-advantages-and-disadvantages-of-cms-bundled-payment-initiative-8-responses.html
Medicaid.gov. (2014). Affordable care act. Retrieved July 22, 2014 from http://www.medicaid.gov/AffordableCareAct/Affordable-Care-Act.html
RAND Corporation. (2014). Analysis of bundled payment. Retrieved July 21, 2014 from http://www.rand.org/pubs/technical_reports/TR562z20/analysis-of-bundled-payment.html
World Health Organization. (2012). United States of America. Retrieved July 22, 2014 from http://www.who.int/countries/usa/en/
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