In April 2013, Medicare launched the Bundled Payment for Care Improvement (BPCI) Initiative to offer providers four voluntary bundled payment options. Now, more than 6,000 organizations are participating in the program.
Many participants also recognize consumers’ and employers’ interest in purchasing comprehensive and affordable episodes of care. And where there's demand, there's growth opportunity; an increasing number of providers are experimenting with private sector bundled payments as a tactic to grow market share.
Commercial Bundled Payment Tracker
Even Medicare is recognizing the power of including commercial payers in bundled arrangements by integrating private payer partnerships into the launch of the new bundled payment initiative, the Oncology Care Model. To appeal to purchasers, providers must create a bundled payment product that meets the needs and preferences of the market. Here are five key considerations to take into account before jumping in to your own bundled payment program.
To effectively use bundled procedures as a growth lever, providers must develop a compelling value proposition and sales strategy. Although employers and commercial insurers are very different stakeholders, they both have the same goal—total cost savings. Financial data will be critical for demonstrating the attractiveness of the bundled service.
When Cleveland Clinic’s National Orthopedic & Spine Alliance markets their orthopedic services, they focus on how better quality outcomes, fewer readmissions, and a strict focus on appropriateness of care can save employers 5-10% of their musculoskeletal spend.
When evaluating the viability of bundling a service, it is critical to determine which procedures to bundle and who the purchasers would be. For example, maternity bundles are an inherently local product usually sold directly to consumers, while cardiovascular procedures can be sold on a national stage to employers wholesale. Before bringing a bundle to market, providers must ask themselves whether to sell to employers, through payers, or direct to consumers, and determine the geographical bounds of the market for the procedure.
It is imperative that providers take into account purchaser preferences, market size, and the competitive landscape to predict potential volume growth. Given the effort required to develop a bundled payment model, high volumes are necessary to ensure a return on that investment.
Identifying whether a service is best suited for a local, regional, or national market will clarify potential demand and competitors. Cleveland Clinic did just this when they decided to offer hip/knee replacement bundles.
Rather than launch another national market product like the Specialty Cardiovascular Network, the Clinic recognized that patients don’t want to drive more than two hours for an orthopedic procedure. So, they partnered with a group of providers across the country to establish a physician hospital organization known as the National Orthopedic & Spine Alliance (NOSA) to to offer local and regional access through their provider network.
The key to gaining market share through bundling is offering purchasers a predictable, competitive price point. When pricing a bundle, providers must take into account both historical costs and potential cost savings before determining whether they can offer a price competitive enough to drive volumes.
OrthoCarolina, a physician group in North Carolina, has worked with Blue Cross Blue Shield and local Charlotte hospitals to set up a hip/knee replacement bundle with a price point attractive to both the payer and their patients.
OrthoCarolina has also partnered with local employers to encourage steerage through benefit design. For example, Duke Energy requires that all employees and dependents use OrthoCarolina for joint replacement.
Before bringing a bundle to market, providers must ensure they have a network of partners across the care continuum. The nucleus of any bundled product offering is the partnership between hospital and physician group. Fortunately, bundled payments offer a vehicle to align incentives, either by sharing risk or creating gainsharing incentives. Physician groups must ensure they are producing consistent results that make them a reliable bet for hospital partners. Establishing care pathways and quality metric goals can be a part of program development and must extend beyond discharge, through the end of the defined episode.
Although quality is paramount, bundles cannot be successful without the infrastructure to manage payments. Existing billing and revenue cycle systems were established to administer strictly fee-for-service payments, while bundled payments require providers to build out the infrastructure to accommodate either a lump sum payment or a retrospective reconciliation process.
Six factors that drive bundled payment profitability
If using a prospective bundle, providers will need to create a process for purchasers to pay one lump sum, and establish a system to collect and distribute payment to all parties. If operating under a retrospective bundle, all parties will be paid under the traditional fee-for-service model, but providers must set up a reconciliation process to account for distributing extra savings and repaying overages.