Over the past few months, bundled payments have seemingly become the reimbursement reform of choice, with the Bundled Payments for Care Improvement (BPCI) Initiative in full swing and the announcement of a proposed mandatory bundled payment program for orthopedic procedures in 75 metropolitan areas.
The cost-cutting benefits of bundled payments to payers are self-evident. Under BPCI, Medicare receives a 2-3% discount on typical fee-for-service payments. However, the enthusiasm (and controversy) over bundled payments are not fueled by cost savings alone.
The promise of bundled payments is that by better aligning provider incentives, gaps in the care continuum will be filled, providers will work together to improve care while lowering costs, and patients will receive a higher quality of overall care. In our research this year, we’ve found that at least in some cases, the promise has become reality: bundled payments are encouraging providers, and payers, to find the improvement opportunities that lie at intersections of cost reduction and quality improvement.
Cost driver analysis reveals quality opportunity
One such cost-reducing, quality-improving opportunity often appears when hospitals work to understand the drivers of their costs in a procedure targeted for bundled payment.
When hospitals manage their costs under a bundled payment contract, their financial goal is to reduce average costs across multiple patient episodes so as to not exceed the contract’s target price, the "bundle" price. One way of achieving this is to reduce average costs across all patients, by implementing cost-saving tactics that affect every case, such as standardizing supplies or working to reduce overall length of stay.
However, when hospitals look closely at their costs across multiple patients are analyzed, they typically find many patients who have costs at or under what the bundle target price, but also a smaller number of patients who have costs that far exceed the bundle target price. These latter patients are high-cost outliers, and they can often be disastrous to overall financial performance in a bundle.
So, the bundled payment arrangement provides an immediate imperative to reduce the financial burden of these high-cost cases. Usually, this imperative also leads directly to quality improvement, because the reason that these patients’ costs are so high in the first place is that something has happened out of the norm: excess ICU days, a readmission, a major infection or other complication.
Promoting post-acute collaboration
A second intersection of cost reduction and quality improvement can be found with how hospitals and post-acute care providers collaborate under bundled payments. For many hospitals, bundled payments serve as a forcing function to identify and work with post-acute care providers in a truly meaningful way.
Recently, I worked with one Cardiovascular Roundtable member, a major hospital in the Southwest that developed a partnership with their post-acute care providers as part of their bundle for medical cardiology patients. Through this partnership, the hospital essentially implemented the same care strategies and protocols that they had in the hospital for these patients in the post-acute care environment as well. And rather than simply mandating that the post-acute care providers implement their protocols, they invited the staff at the post-acute care providers to come to the hospital for educational sessions and made hospital staff available to the post-acute care providers for questions or concerns.
This hospital’s effort certainly improved care, as patients now had a clear, standardized care pathway and enhanced support as they transitioned from the post-acute care provider to their home. It also had a cost-reduction benefit even beyond that of the bundled payment context, as the hospital saw its performance under Medicare’s Readmission Reduction program improve and no longer had a financial penalty.
A broader perspective on 'care'
This one member’s experience collaborating with their post-acute care providers highlights another aspect of "quality" that is important when considering bundled payments as a current and future model for payment reform.
As a C-suite executive at the hospital explained to me, "Patients need care. And care is not a four-day endeavor." As he found, engaging in a bundled payment initiative pushed all providers to think harder about what patients want for their care, and move beyond a focus on just the hospitalization episodes.
Bundled payments are not an easy undertaking, and certain design elements of the CMS pilots pose particular challenges. However, despite the pitfalls associated with bundled payments, there are also inherent benefits and potential in finding those intersections of cost reduction and quality improvement that may in fact also be the right answer for our patients.