Where Commercial and Employer Bundled Payments Stand in Healthcare Right Now

Bundled payments have been an experiment in the United States for roughly a quarter century, and the landscape surrounding bundled payments has changed dramatically since then.

Essentially, bundled payment is the concept that healthcare providers receive a lump sum reimbursement from a payer instead of the usual fee-for-service payment. Typically, the bundled payment payer has been the government. In 1988, CMS started the Medicare Participating Heart Bypass Center Demonstration, which negotiated Medicare bundled payments for coronary artery bypass graft surgery. By 1993, the government had seven hospital participants, and over the course of the five-year demo, Medicare saved $42.3 million on bypass patients in those hospitals.

Fast forward to today, and CMS is taking another crack at bundled payments with the Bundled Payments for Care Improvement program. Nearly 500 hospitals and providers have signed up for the program to date. BPCI is broken down into four models, incorporates post-acute care and experiments with prospective payment, which is when hospitals agree to a price upfront on a particular diagnosis-related group, and CMS pays that specific price to the hospital.

"Payment reform becomes the impetus for care delivery reform, and you see this with bundled payments," says Deirdre Baggot, RN, former lead for CMS' Acute Care Episode demonstration at Exempla Saint Joseph Hospital in Denver. Ms. Baggot, who also is vice president of consulting firm The Camden Group, was appointed by CMS as an expert reviewer for the BPCI initiative.

Bundled beyond the government

The federal government has been a reliable source to test the effectiveness of bundled payments, considering Medicare is such a large payer, and many Medicare beneficiaries can be treated in common bundled payment DRGs, such as orthopedics or cardiology.

However, commercial payers and employers have actively made their way into the bundled payment sphere, and hospitals have adopted some of those strategies with open arms. Ms. Baggot says as of June, there are 33 commercial bundled payment initiatives and counting. Blue Cross Blue Shield affiliates are one of the most active bundled payers. For example, Blue Cross and Blue Shield of North Carolina created a bundled payment for knee replacement patients at Duke University Hospital in Durham, N.C.

Five major national employers have led employer-based bundled payments: Wal-Mart, Lowe's, PepsiCo, Boeing and Kroger. Wal-Mart has been the foremost leader in the space. It has cardiovascular and spine bundled payments with Cleveland Clinic, Geisinger Health System in Danville, Pa., three hospital sites within Mayo Clinic, Mercy Hospital in Springfield, Mo., Scott & White Healthcare in Temple, Texas, and Virginia Mason Medical Center in Seattle. Several other smaller employers have started their own bundled payment deals with hospitals, which have shown to be fundamentally different than bundles with Medicare or commercial payers.

"While Medicare and commercial bundle design typically include a financial incentive for physicians, employer bundle incentives are focused on the employee," Ms. Baggot says. "Most employers will cover the entire expense of the procedure, resulting in no out-of-pocket expense for the employee. In addition, employers often pay for the airfare, lodging and other out-of-pocket expenses associated with patient and a companion travelling to a selected provider."

Medicaid bundles as well?

In 2012, bundled payments finally made their way into the state-driven Medicaid sector. Arkansas officials created the Arkansas Health Care Payment Improvement Initiative, which currently is the only Medicaid bundled payment model in the country and is mandated for state providers within five episodes: perinatal, attention deficit hyperactivity disorder, upper respiratory infection, total joint replacement for both hips and knees, and congestive heart failure.

Peter Banko, president and CEO of St. Vincent Health System in Little Rock, Ark., says his system has been pursuing bundled payment capabilities for the past two years, and AHCPII is a good outlet as St. Vincent's awaits the full rollout of Medicare's BCPI.

So far, St. Vincent's results have been positive. Mr. Banko says bundled payments have spurred the health system to find ways to make care more efficient and root out waste in the system. This has resulted in more seamless operating room throughput and lower length of stay — and the cherry on top is that St. Vincent's costs for these initiatives are expected to be 20 percent less than its competitors.

"We think it's the right way to go," Mr. Banko says. "It aligns incentives, patient care and quality that providers haven't had before." He adds that his system's progress with bundled payments could lead to commercial deals and national best practices for other hospitals within its parent organization, Englewood, Colo.-based Catholic Health Initiatives.

Considering bundled payments

As more hospitals toe the line with bundled payments, it is important for executives to understand the nuances associated with them.

"Strategic opportunities for hospitals exist in specific service lines — perhaps most significantly within cardiac, orthopedics, spine and transplant — to position themselves for a 'value-based episodic care' arrangement with a payer," Ms. Baggot of The Camden Group says.

Here, Ms. Baggot outlines four key considerations hospital executives should keep in mind when formulating bundled payment strategies.

•    Price. For Medicare, hospitals and post-acute providers are required to discount prices, whereas employer and commercial bundles usually do not require a discount. In some instances, they may agree to pay a premium to hospitals and physicians who are willing to assume additional risk beyond the inpatient setting.

•    Financial incentive. "Medicare bundles operate under a Stark [Law] waiver, which enables hospitals to gainshare with physicians," Ms. Baggot says. "Commercial bundled payment agreements also often have some sort of financial incentive for physicians. Self-funded employer bundles typically direct financial incentives to the employee."

•    Flexibility. Hospitals can often create more collaborative and open-ended bundled payment arrangements with employers and commercial payers, whereas Medicare bundles are usually inflexible.

•    Ease and speed of implementation. Ms. Baggot says hospitals that negotiate bundle deals with commercial payers and employers typically commence their agreements within six to nine months of the initial discussions. However, Medicare bundles, which are less flexible in terms of design, have historically been slower to get off the ground, she says.

More Articles on Hospitals and Bundled Payments:
Provider-Payer Bundled Payments: What We Know After 1 Year
4 Steps Hospitals Can Take to Pilot Bundled Payments
New Payment Models: Comparing Fixed Discounts and Shared Savings

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