The Advantages and Disadvantages of CMS' Bundled Payment Initiative: 8 Responses

The healthcare arena has been abuzz with conversations of bundled payments since the Department of Health and Human Services and CMS officially launched its Bundled Payments for Care Improvement initiative at the end of August. The program, which is part of the Patient Protection and Affordable Care Act, looks to align payments for hospitals, physicians and all other healthcare service providers across the entire episode of a patient's care.

Testing and developing for the four different models will start this year. With much still unknown on how the bundled payments will pan out, eight leaders within the healthcare industry give their thoughts on the program's potential advantages and disadvantages for hospitals and other providers alike.

Jim Bonnette, MD, partner and chief medical officer in the Health and Life Science practice of Oliver Wyman: For many participants, the biggest advantage of the bundled payment initiative is its accessibility. For years, physicians and hospitals have experimented with risk-based payments and value-based service delivery. Accountable care organizations, physician-hospital organizations and especially co-management arrangements were built to deliver on these promises. This initiative offers hospitals a substantial opportunity to capitalize on the work they have done and the relationships they have built in taking a true first step toward fee-for-value care.

The program contains some attractive elements for hospitals. It aims to include more participants than either the Shared Savings program or the Pioneer ACO program. It engages specialists, not just primary care, which gives hospitals greater control in structuring bundles. And CMS has opened the door to hospitals that want to design their own bundles and time periods.

But this very desirable flexibility comes at a cost in terms of certainty. Not only can providers define their own care bundles — they have to, and their risk adjustment models as well. Most significantly, three of the four models CMS suggests are based on retrospective reconciliation payment with very little guidance on how they would actually share the gains or losses. The fourth is a prospective payment arrangement based on upfront information that CMS has not previously been able to deliver. For organizations looking to begin the transformation to value-based reimbursement, these are big hurdles to consider.

A major target of the program is problematic readmissions, so CMS will seriously consider organizations that want to take on complicated medicine-related episodes. While the Acute Care Episode Demonstration project clearly focused on cardiologists, orthopedists and related surgeons, this model encourages active participation by a full range of primary care providers and subspecialists. The infrastructure to support the initiative is daunting, but the opportunity to achieve significant savings from reducing readmissions may well outweigh the risks.

Francois de Brantes, executive director of Health Care Incentives Improvement Institute: For the many hospitals that don't employ orthopedic or cardiac surgeons, the bundled payment pilot gives them a unique opportunity to collaborate effectively in reducing high-cost implantable devices, preventable readmissions and inefficient post-acute care. Hospitals and surgeons, working together in current bundled payment pilots, have found many ways to reduce these costs and, as a result, significantly boost their operating margins per case. Further, as Medicare implements the value modifier on physician fee schedules, physicians participating in bundled payment pilots will have an opportunity to reduce their episode costs and potentially see their fee schedules increase under that system.

More integrated systems can use the bundled payment pilot to gradually reshape their organization into an ACO. The early results from ACO-like payment pilots have shown the initial focus of delivery systems is on better managing supply chain costs, reducing internal waste and preventing complications. These targets are the same in bundled payments, with the added benefit that systems can avoid the confounding issue of insurance risk when participating in a bundled payment pilot instead of an ACO-type payment pilot.

The only real disadvantage of the bundled payment pilot is the assumption of financial risk. If the hospitals and physicians aren't capable of clinically collaborating to reduce the average costs of episodes, they are at risk for the costs in excess of the negotiated budget.

Blair Childs, senior vice president of public affairs for Premier: The initiative aims to unite hospitals and physicians in a common goal of coordinating care to achieve better outcomes and lower cost. Perhaps even more important, these bundled payment demonstrations offer a highly effective way to engage physicians and enhance overall margin in a way the current system does not allow.

As we have learned from members in our Partnership for Care Transformation collaborative, health systems are at different points in their journey to deliver coordinated care. Some are prepared to accept population-based risk, while others require more time, resources, knowledge and experience. This new alternative to the Medicare Shared Savings program will provide an on-ramp to those systems beginning the journey to full continuum accountable care, while reinforcing the alternative payment arrangements they may already have underway with private payors.

Hospitals need to move away from our fragmented and inefficient healthcare system in a variety of markets, including the Medicare population, commercial markets, self-funded employers, provider-sponsored plans and Medicaid. Fundamental payment reform is needed to align incentives. These demonstration projects provide the flexibility and payment innovation needed step away from our broken fee-for-service system toward alternatives that can reward quality and cost-effective care.

The prospect of bundled payments represents significant challenges for providers, but these challenges are best met through collaboration with like-minded peers.

Arthur Fried, JD, partner at Epstein Becker Green: One of the promises of healthcare reform in general and HHS' bundled payment initiative in particular is the enhanced ability of the healthcare system to deliver quality care in a coordinated fashion, thereby attaining cost savings from the elimination of duplication and unnecessary tests and treatment. This is accomplished by incentivizing provider integration and the increased use of standardized treatment protocols, i.e., evidence-based medicine. While the initiative should succeed, there are some barriers to success, particularly in the near term.  

The initiative contemplates a robust and integrated electronic health record system, a costly proposition even with available financial incentives, with the capacity for seamless communication among varying record systems. Providers, especially smaller ones, may feel forced to align with larger players, and many — including physicians approaching retirement age — may lack the motivation or the resources to make the required investment. Patients are not locked in to providers, so "leakage" must be anticipated and kept to a minimum. Payment must be realistically based upon the cost of providing high-quality care. Health systems may be averse to taking risk where they do not control the providers pre- and post-admission.

In many regions of the country, practitioners will have little experience with such hospital-physician alignments, and what experience they do have will be with the failed alignments of the 1990s. The result may be a reluctance to try again, along with a rather lengthy ramp-up period, during which neither the anticipated quality improvements nor cost savings are realized.

Accomplishment of these goals is fraught with legal challenges as well. Providers must structure these new alignments to navigate between the anti-trust, non-profit and fraud and abuse issues on the state and federal levels, which are inherent in addressing their various interests. Whether and how entities devised for the bundled payment initiative will dovetail with the developing requirements for ACOs remains to be seen.     

Robert Goodman, managing partner and founder of The Mansfield Group
: Chief among the providers' key to the success of this approach are hospitals and physicians — long-time adversaries whose economic interests have generally not been aligned at all. Hospitals are often, but not always, paid per episode of care or hospital stay, and physicians have been paid for each visit to or by the patient (and for some, for each procedure or test being done). These economic incentives are adverse to one another.  

While the theory behind the bundled payment approach is that it should better align incentives on an overall basis and drive down costs, the practical consideration is how will this be done and how can we get providers to work together with payors and other stakeholders in the system to make it happen.   

While no one can guarantee that a bundled payment approach is the right approach, it would appear to be a reasonable step in the right direction of having our healthcare system providers and other stakeholders better align their interests.

Linda Hoff, CFO of Meriter Hospital in Madison, Wis.: Our goal is to improve value by changing the way physicians, hospitals and other medical professionals are paid in order to emphasize higher quality at lower costs. Achieving higher quality includes improving timely access to care and delivering safe and effective care that is well coordinated among medical professionals.

The ultimate bundled payment is the economic alignment vehicle of the comprehensive care payment model involving a single risk-adjusted payment (capitation) for the full range of healthcare services needed by a group of people for a fixed period of time. The benefits associated with this model are incentives to deliver care efficiently and incentives for medical professionals to collaborate. The model provides the flexibility for medical professionals to innovate the design of care, and they are rewarded for maximizing health.  

Bundled payments have similar benefits including incentives for improved coordination of care, the simplicity of billing and establishing accountability for a defined episode of care.

The most significant challenges are enlisting the support of physicians that are not employed, difficulty of defining the episode and devoting the resources and effort to establishing mechanisms to bill for the episode of care but even more significantly, determining a fair allocation to the multiple providers for the care delivered.

Marc Malloy, CEO of Ascentia Health Care Solutions: Bundled payments are essentially an older idea with a new name. A good example would be transplant rates, which have been in existence since the earliest days of managed care. These rates were typically fixed pricing with a hospital system that included the inpatient, outpatient, professional and ancillary costs of care. The new twist with some bundled payment models is that the rates span not only the episode of care for the patient, but also multiple providers that deliver care, regardless if the providers have any business relationship. There are good reasons to like — and not like — bundled payments.

On the positive side, bundled payments usually align the goals and objectives of payors and providers. The payor receives the certainty of fixed costs for the episode of care, and providers are incented to find ways to lower costs and improve efficiencies, since lowering costs is the primary way to expand margins. To maximize the economics of bundled rates, providers may elect to specialize in certain services, since increased volume usually produces economies of scale, and as documented in numerous studies, high volume is positively correlated to higher quality outcomes.

However, disadvantages are present, too. First, widening margins for the provider is not likely sustainable. For example, if a provider receives $1,000 for an episode today and finds ways to reduce the costs of delivering the care from $900 to — let's be extreme — $500, then it would be logical for payors to target these margins for further reductions in rates. Additionally, it is possible that bundled payments will reduce innovation. The adoption of new technologies and new medications has long been attributed to increased costs, and yet innovations have also driven better outcomes and improved quality.

The careful deployment and adoption of bundled payments is crucial to avoid unintended consequences.

Daniel Shostak, president of Strategic Affairs Forecasting:
•    It makes payment considerably easier.
•    There is a huge incentive to providers to be cost-conscience.
•    There is a good incentive for providers to remain up-to-date on ways to controls costs.

•    Technology changes — what makes sense for a bundle today may not make sense in three to five years.
•    Revising bundles can be difficult, both technically and politically.
•    Because revising bundles is difficult, a disincentive may arise for remaining up-to-date and using better technology.
•    Accounting and distribution of overhead and indirect costs remains difficult.
•    Addressing items that are not covered in the bundle can be a headache or worse.

Related Articles on Bundled Payments:

Redesigning Healthcare Delivery Through Bundled Payments for Care: Q&A With Center for Medicare and Medicaid Innovation's Valinda Rutledge
7 Points to Know About the Bundled Payment Initiative
Opportunities in the New Bundled Payment Initiative

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