Bundled Payments Aim To Control Health Care Costs
Jan. 13--It's not just patients who find the unpredictable costs of health care unnerving. Employers and insurers also wish they had a better way to predict how much they will have to pay out in a given year.
A new mode of reimbursement, known as bundle payments, aims to minimize such uncertainty.
Under this model, an insurer negotiates one rate for all services associated with one episode of care, such as knee surgery, from admission to discharge. If a patient requires extra services -- for instance, if he or she develops a post-surgical infection -- the hospital is on the hook to cover any costs involved.
Medicare started testing the concept a few years ago and private health insurers have followed suit. For the past few years, OrthoIndy, a northwest-side orthopedic hospital, has been one of a handful of hospitals participating in a United Healthcare pilot program that explores using bundled payments for hip, knee, and back surgeries.
Now, UnitedHealthcare plans to extend the bundled payment program to at least 25 other sites that perform orthopedic surgeries nationwide. The insurer has deemed these centers of excellence, facilities with exemplary outcomes for these procedures.
Patients benefit as well because there are incentives for them to choose a center of excellence, said Michelle Lobe, vice president of network strategy and innovation for UnitedHealthcare.
"What we're trying to do is drive the patient to high quality care," she said. "It isn't just a pricing decision, it's really built on quality first and then pricing."
Patients may not even realize they received care under the new payment model, which could results in lower fees for them as well, depending on how their benefits are designed.
After Gary Graham of Hillsdale had a knee replacement at OrthoIndy in August, he had no difficulty deciphering the bills he received. His United Healthcare plan comes through his employer, Duke Energy.
"Most of everything is paid for," said Graham, 59, who was so pleased with his OrthoIndy experience a few months ago that he recently had shoulder surgery there. "My wife asked for an itemized statement and it showed what everything was. It explains what each thing cost and what they saved and, to them, I guess it's a pretty good deal. The more we saved, the better off we are."
Hospitals also can benefit from a bundled payment arrangement, said Dr. David Fisher, director of the Total Joint Center of Excellence at OrthoIndy Hospital.
In the competitive world of orthopedic surgery, the recognition of a hospital as a Center of Excellence often leads to additional patient volume, which in turn leads to additional revenue.
"You always want to be recognized for doing quality work, and this is one way of getting that recognition," Fisher said. "We still want to be able to market ourselves and put our good face forward and do a good job for people."
Not every hospital benefits, however, Fisher added. Bundled payment arrangements with Medicare often pay less than commercial insurers, and many hospitals do not have the same eye to keeping costs down that OrthoIndy has always had.
Both providers and patients rarely know when a patient's insurance specifies a procedure will be covered under a bundled payment as opposed to fee for service. And the mode of payment does not change the care received, Fisher added.
"I do the same thing irrespective, because I don't know what their payment schedule is. We just do what we do," he said.
Bundled payments are having an impact on costs. The UnitedHealthcare program has seen an average savings of $10,000 or more per operation and resulted in 25 percent lower costs. More than 14 companies, who together cover more than 1 million employees, have enrolled in a bundled payment plan so far, according to UnitedHealthCare.
Other studies have also found bundled payments can cut costs. A recent study by researchers at the Perelman School of Medicine at the University of Pennsylvania found that the average cost for a hip or knee replacement at a Texas health system dropped more than 20 percent.
The report, published online in JAMA Internal Medicine, also found a 67 percent decrease in longer-than-typical hospital stays, evidence of a decrease in surgical complications, after the hospital started participating in a Medicare bundled payment model.
One critical way that bundled payment achieves cost savings is by incentivizing the surgeons directly, said Dr. Amol Navathe, lead author and Perelman assistant professor of medicine and health policy. Usually the law prevents hospitals from sharing any savings with the surgeons. But bundled payments allow such cost sharing to occur if the hospital receives bonuses for keeping costs low and or for increasing the number of procedures it performs.
"Bundled payments can become a win-win-win," he said. "The health insurer benefits. The patient benefits. The hospital can win because there can be more profits for them, and the physicians can win because they're allowed to share in some of those savings. ... Bundled payments seem pretty effective at reducing spending and from the evidence that we have seem neutral for patients to better for patients."
Some experts say that bundle payments result in better patient care. Hospitals that may have been more casual about a patient's recovery once he or she passed through the doors have incentive to see to it that the patient does well after leaving, said Fred Bentley, vice president of the Center for Payment & Delivery Innovation at Avalere Health. In a fee-for-service model, the hospital has less motivation to prevent so-called bounce backs or readmissions.
This all could translate into more bundled payments in the future.
In April, Medicare started mandating bundled payments for knee and hip replacements for 800 plus hospitals in 67 markets nationwide. More recently, it said it will launch another round of mandatory bundle payments for cardiac care this summer.
UnitedHealthcare is also exploring bundled payments for other costly procedures, especially those associated with high cost procedures. The insurer recently launched a three-year pilot program with the University of TexasMD Anderson Cancer Center to enter into bundled payments for treatment for head and neck cancer for up to 150 cancer patients in certain UnitedHealthcare employer-sponsored plans.
Additional procedures could follow, Lobe said.
"It's definitely a trend. I think we will see more development around bundled payments built around particular episodes," she said.
There are some naysayers, including Dr. Tom Price, whom President-elect Donald Trump has tapped to head the U.S. Department of Health and Human Services. Price has said he disproves of mandatory bundled payments, but could allow Medicare to continue voluntary bundled payment programs.
Commercial insurers, however, likely will still have leeway in this area.
"The great thing on the commercial side is just that there's a lot more flexibility and interpretation," Bentley said.
The only potential downside to bundled payments, said Bentley, is that they could encourage doctors to be quicker to perform procedures in an effort to compensate for lost reimbursement.
One other change that come in the future entails making the bundled payments obvious to the patients themselves.
"For patients, it's not a very salient thing from a cost perspective, and from a care perspective, not a highly observable thing, not like a fancy lobby," Navathe said. "What we hope is whether they know it's a bundled payment hospital or not, the experience that they have when they go to a bundled payment hospital is better."
Call IndyStar staff reporter Shari Rudavsky at (317) 444-6354. Follow her on Twitter: @srudavsky.
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