Maximizing value for patients though bundled payments

Consider the value of an everyday purchase, such as coffee. Some consumers may balk at the price of Starbucks, while others think it's more than reasonable. They decide this based on their perception of value.

Determining the value of a latte is much easier than most purchasing decisions. However, the financial worth of a good or service is distinguishable in nearly all consumer decisions, that is, except for healthcare.

For most patients, it's hard to discern what constitutes value in healthcare. The textbook definition—value is the health outcomes achieved per dollar spent —isn't particularly meaningful for patients. Measuring and managing the quality and cost of care has long been incumbent on the provider, but as healthcare evolves and patients become responsible for their care, it's time they understand value.

Without medical training, patients are unable to evaluate whether they received quality, cost-effective healthcare, nor should they be expected to. They cannot determine if a procedure, test or visit is medically necessary. Most patients rely fully on their provider to determine the appropriate care plan, and hope that the trained professionals will make the right decisions to help alleviate symptoms and improve health without spending unnecessarily. At best, patients may ask for a second, or even third, medical opinion to ensure the best course of action is being taken. However, even then, the conversation has little to do with value, and more to do with medical outcomes.

In reality, unlike almost every other industry, patients almost never know the cost of services until after they have received the care. Prices are not transparent, and conversations around cost are taboo in many clinical settings. And as we all know, the cost of services, and the bill to patients, varies greatly for the exact same procedures, even among common procedures such as lab tests and screenings. Given this scenario, it's easy to see why it would be impossible for a patient to determine value and select the best course of action based on that.

Given the lack of information, patients are flying blind when it comes to value in a traditional fee-for-service model. Patients put all health and most financial decisions in the providers' hands, and hope they are going to receive safe, cost-effective healthcare leading to a positive outcome.

Today, however, it doesn't have to be a leap of faith. Determining value for patients is a reality come to fruition in the form of bundled payments. Because organizations enter into payments arrangements that include both financial and performance accountability, patients can benefit from price transparency, reduced costs of care, and improved outcomes.

With bundled payments, instead of paying for multiple physicians, tests and facilities separately, patients are given one price for their entire episode of care. This just doesn't eliminate the frustration of multiple medical bills; it also provides certainty for patients. They know exactly how much their care will cost before care is delivered, even if they experience unplanned health events.

If the bundled payment contracts are structured appropriately, patients can also benefit from reduced out-of-pocket costs and improved outcomes. With organizations at-risk for the overall cost of care, it is in their best interests to ensure optimal patient outcomes, while also reducing the utilization of unnecessary medical care. Under the agreements, the more efficiently organizations can provide care and optimize patient outcomes, the greater the potential revenue and profitability.

With these benefits, it's easy to see why bundled payments are gaining traction. A recent study by PwC found that although most patients had little idea what bundled payments are, once the model was explained, the vast majority favored bundled payments over the current fee-for-service model. Of consumer surveyed, 80% said they would pick a bundle over the current care they were offered.

Bundled payments provide value that every patient can understand. They provide a set price with incentives that lead to cost-efficient, quality care. As consumerism increases in healthcare, models of care need to not only benefit providers and payers, they must also benefit the patient. Bundled payments are one payment solution where all parties see value.

Dave Terry is a leader and innovator on bundled care and healthcare reform, and has led initiatives to improve healthcare for providers, payors, and patients. He is currently co-founder and CEO of Archway Health, a bundled payment advisory and technology firm.

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