8 Steps for Hospitals Developing Bundled Payment Programs

The American Hospital Association has issued a brief for healthcare providers' transition to bundled payments. Here are eight of the brief's main takeaways.

1. Define episodes of care. An episode of care needs a triggering event, such as an inpatient admission, and a clear endpoint, such as discharge from the hospital. IT can also have a timeframe, such as 30, 60 or 90 days from a hospital stay. "There are a number of proprietary episode groupers that are available on the market and used by private payors," according to the brief, and hospitals may find those worth exploring.

2. Examine the distribution of costs across services. Understanding where costs are concentrated allows a hospital to identify cost reduction opportunities and where partnerships with other providers might be most effective.

3. Identify the sources of variation in care. First, hospitals can examine the level and source of variation in the cost per case. Next, they can pinpoint where variation occurs. "One way of identifying opportunities to reduce costs is to look at what percentage of variation in cost is due to each service type," according to the brief.

4. Design pathways of care. Patient pathways tend to involve more than one setting, and current pathways may be "unnecessarily complex," according to the brief. Hospitals need to understand how many providers are involved in episodes of care so better assess how many provider partnerships are necessary for an effective bundled payment stream.

5. Assess the performance of post-acute care providers.
Once hospitals determine where most of their patients receive post-acute care, they should examine those providers' performance to determine which would make for most effective partners. "In addition to looking at length of stay, cost and quality indicators for the services provided by the facility, closely examine the readmission rate," according to the brief, as these rates are key determinants for episode-of-care costs.

6. Examine physician practice patterns to identify potential savings.
Any broad differences in physicians' practice patterns may indicate a need to implement standard care practices for pre-hospital services. "Areas to examine include use of supplies, drugs and devices, use of intensive care, length of stay, discharge destination, follow-up care, readmissions and complications rates," according to the brief.

7. Assess levels and types of risk the hospital is willing to take on. Hospitals should also consider potential outliers, and how the presence or absence of a high-cost case might affect the average cost of the bundle. They'll also want to protect themselves from insurance risk by ensuring payment rates are risk-adjusted, according to the brief.

8. Develop a bundle price. An organization's bid price for a bundle will be based on historical patterns of cost across the continuum for selected conditions, how much it can lower that cost and an assessment of where it sits compared with other competing hospitals. Hospitals should also incorporate clinical expertise in their pricing process, to determine whether possible changes in treatment could affect target pricing.

More Articles on Hospitals and Bundled Payments:

Which Insurer is Most Willing to Offer Performance-Based Contracts?
For Payment Innovation, Which Insurers Do Physicians Prefer Most?
6 Hurdles to Bundled Pricing

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