5 Points Hospital CFOs Need to Know About the Bundled Payment Business Model

Before hospitals and health systems can dive into a bundled payment demonstration or pilot program, CFOs and other executive leadership must understand the impact bundled payments can have on their organizations as well as patients.

The American Hospital Association and the Association of American Medical Colleges commissioned Dobson DaVanzo & Associates to look at bundled payments and provide analysis on different episode-based payment bundles that providers could expect.

Here are five points, which were outlined in the report, that cover the core tenets of the bundled payment business model.

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1. Clinical and financial components fall within the hospital's responsibilities.
For hospitals willing to take on a bundled payment approach, CFOs must comb through all the ramifications of it because the hospital is clinically and financially responsible for all of the medical services required by a patient during an episode of care. For example, if patients return to the hospital after a hip replacement, the hospital must provide those additional services — and all costs come out of the bundled price.

2. Reducing intensity of services to required level hypothetically lead to optimal patient care. One of the primary incentives under the bundled payment business model is the theory that reducing services will lead to both savings and better patient care. The current fee-for-service format pays on a volume basis, which could induce a higher incidence of tests, admissions and other healthcare services at a higher cost. Bundled payments, however, incent physicians and hospital CFOs to find the most efficient medical continuum — which, in theory, is best for the patient as well.

3. Bundled payments spur better management across the continuum of care. If hospitals and other providers, such as nursing homes and physicians, are able to reduce costs, they are able to share more of the profit within the bundled payment (also known as gainsharing). But in order for there to be gainsharing, there must be total collaboration and confidence among hospital executives, physicians and other providers to provide the best care in the right place at the right time.

4. Hospital-physician cooperation can lead to lower costs. When hospitals and physicians cooperate in a bundled payment business model, it directly leads to lower internal hospital costs (e.g., supplies, drugs, physician preference items such as implants). The gainsharing incents physicians to work with CFOs and others to find the most cost-efficient means to provide the right care.

5. Three primary risks exist. There are several incentives within bundled payments, but there are also financial risks for hospitals as well. The report highlights three financial risks for CFOs in particular: hospitals accepting bundled payments for an MS-DRG will be liable for any services rendered by providers outside of their direct control; CMS will likely require contracting organizations to discount the bundled payment amount; and hospitals may or may not be paid on a risk-adjusted or outlier basis for more complex cases.

More Articles on Bundled Payments:

Defining the Episode of Care: Average Bundled Payments for 16 MS-DRGs
SSM Health Care Hospitals Accepted Into Bundled Payment Programs
Insights into Gainsharing Arrangements for Emergency Physicians: Q&A With Dr. Ronald W. Stunz

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