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Bundled Payments: Overcoming Barriers to Adoption
By Richard Cole

Since the 1980s, numerous programs have demonstrated that bundling payments to providers can significantly lower healthcare costs while improving patient care. However, recent reports show that healthcare organizations are still slow to adopt this payment methodology.

What is holding back the adoption of bundled payments? Are the challenges related to its implementation exaggerated or do they point to real issues about the bundled payments concept? More importantly, can new technology and management solutions help overcome these difficulties and deliver on the full promise of bundled payments?

A growing record of success suggests that bundled payments may be one of the better alternatives to fee for service. In 1984, the Texas Heart Institute used bundled payments to help reduce costs, simplify billing and collections, increase expense forecasts for payers, improve patient access, and maintain quality of care. In 1991, the University of Alabama realized many of the same benefits with a global fee structure that included all physician and inpatient services. Between 2006 and 2007, the Geisinger Health System experimented with a pay-for-performance approach to performing coronary artery bypass graft surgery. The approach resulted in shorter hospital stays and lower readmission rates.

According to The Commonwealth Fund, the bundled payment methodology has the potential to reduce health expenditures in the United States by as much as $300 billion between 2010 and 2020. The Congressional Budget Office has estimated that bundling hospital and post-acute care for Medicare patients alone would save $18.6 billion by 2019.

However, a recent study by the RAND Corporation states that despite interest in bundling payments, adoption continues to present challenges to providers. The study evaluated the PROMETHEUS Payment program, a pilot of bundled payments conducted by the Healthcare Incentives Improvement Institute. Three years after the project was launched in three US communities, no bundled payments had been made, and no payment contracts for bundled payments had been executed.

The main challenges in adopting bundled payments involve processes, people, and technology. Changing processes and people’s attitudes have proved to be especially difficult.

“The largest barrier to implementation of bundled payment with Medicare has been the current state of Medicare administrator contractors,” says Deirdre Baggot, PhD(c), MBA, vice president with The Camden Group, an expert on bundled payment, and leader of an acute care episode demonstration for the Centers for Medicare & Medicaid Services in Denver, Colorado. “Hospitals and physicians need to be on the same fiscal intermediary to receive a prospective bundled payment with Medicare.”

Rates for any episode of care must be developed and negotiated between payers and providers, with each side negotiating what seems like a fair price. The selection of bundled services, such as doctor bills, X-rays, medical implant devices, tests, and hospital care, must be discussed in detail. If circumstances change―for example, the introduction of new treatments or protocols―the selection of services and the bundled rate will have to be renegotiated. No industrywide guidelines are currently in place for these rate structures. Unexpected or problematic readmissions, financial risk for payers and providers, regulatory compliance, and legal issues must also be addressed.

Negotiations among providers can be even more challenging. “Determining the relative charges within a bundle is a zero-sum game,” explains Jay Sultan, associate vice president for The TriZetto Group, an HIT software and service provider. “If the generalist gets more, the specialist might get less. Members must cooperate for the system to work and, in some cases, this requires a new way of thinking about relationships between providers.”

Sultan also stresses the importance of technology. “Most payers will not implement bundled payments at any scale without enabling technology.” Manual processes for data entry, record sharing, claims administration, and reimbursement are labor intensive, error prone, and limited in their capacity to scale. This applies to any area of healthcare, of course, but the issues become especially relevant to a bundled payments system that requires close collaboration among numerous parties. In large-scale systems, changing or updating a bundled payments system becomes almost impossible without the appropriate technology.

American Medical Association President Peter Carmel, MD, agrees that scalability and technology must go hand in hand. “The larger the bundle, the greater the financial risk involved in defining or pricing it incorrectly,” he says. “Technology can be helpful to the extent that it can mitigate these risks by improving the accuracy of risk adjustment and attributing specific costs and savings among different physicians and facilities.”

Providers acquiring new technology to support bundled payments should carefully consider both the immediate and the long-term needs of their organization. A value-analysis process must be performed that weighs services from physicians, specialists, other providers, and administrators in the overall cost of the technology. The technology must be easily customizable, offer scalability, and support the business goals of the organization.

Finally, payers should consider the advantages of third-party management platforms now available to support collaboration among different parties. As Baggot points out, “A third party can assist with claims adjudication and physician payment. This approach allays physician fears with respect to timeliness and accuracy of payment and provides a validation process for the hospital as well. The best of them can go beyond this to assist in increasing quality through data sharing and benchmarking.”

One third-party option is Access MediQuip. For providers and facilities, the company manages, in part or in whole, the entire surgical device workflow, including procurement of any surgical implantable devices requested for the surgery, payment for the implants utilized during the surgery, and reimbursement of those implants from the health plans. “Our goal is to help the physicians maintain 100% choice of implants while taking all of the cash payment and administrative burden with implants off their shoulders,” says Prakash Patel, MD, CEO of Access MediQuip. “Moreover, we provide data back to providers so they can understand their bundle more effectively, including the largest variable cost—the implants. We also provide information around implant options, quality and safety, and related member services to help position these providers as preferred collaborative partners to patients and health plans.”

Like many initiatives and strategies for healthcare reform, bundled payments is not a magic bullet for lowering costs, improving care, and streamlining operations. Sultan suggests that the approach will be appropriate in areas such as coronary artery bypass graftings and joint replacement and spine, but adoption may be slower in nonacute areas. Baggot anticipates that by early 2013 the bundled payment methodology will have expanded to every state in the United States on the commercial side, the Medicare side, or on both. In any case, today’s activities suggest that the right strategies can help overcome many of the current barriers to adoption for bundled payments systems.

— Richard Cole is a freelance writer based in Texas.