Hospitals

Bumbled or bundled payments?

If bundled payments are the wave of the future for paying healthcare providers, they still have a long way to go. A pilot program at hospitals in California that intended to test bundled payments for orthopedic procedures failed to meet its intended goals. The project succumbed to “recruitment challenges, regulatory uncertainty, administrative burden and concerns […]

If bundled payments are the wave of the future for paying healthcare providers, they still have a long way to go.

A pilot program at hospitals in California that intended to test bundled payments for orthopedic procedures failed to meet its intended goals. The project succumbed to “recruitment challenges, regulatory uncertainty, administrative burden and concerns about financial risk,” says a new study by RAND Corporation.

“The outcome represents a disappointing effort to widely adopt bundled payments, a much-touted strategy that pays doctors and hospitals one fee for performing a procedure or caring for an illness. The strategy is seen as one of the most-promising ways to curb health care spending,” RAND said in announcing the study.

RAND researchers evaluated a three-year effort led by the Integrated Healthcare Association starting in 2010 for bundled payments, overseen by CMS, specifically for orthopedic procedures like total knee replacement surgery for commercially insured patients under age 65.

But the pilot had “such low volume” that there wasn’t enough information to draw any definitive conclusions on whether bundled payments affect healthcare quality or costs, according to RAND.

So is it just back to fee for service? Not quite, but it’s early in the process.

“Bundled payments have great promise for controlling healthcare costs, but thus far efforts to put the strategy in place on a wider scale have struggled,” Susan Ridgely, the study’s lead author and a senior policy analyst at RAND, said in a statement. “We’ve learned lessons from the early setbacks, but more work still needs to be done to realize the potential of this model of payment.”

The California pilot included six of the state’s health plans, an independent practice physician association and eight hospitals, including some big systems like Sutter Health affiliates.

The volume of orthopedic procedures in participating hospitals “was extremely low,” according to RAND – just 35 cases in three years. Ambulatory surgery centers had higher volume, with 111 cases, but, curiously, health plans have been slow to contract with such centers despite their lower costs compared to hospitals, according to RAND.

Delays in regulatory approvals and a lack of consensus on what sort of cases to include in the pilot hindered the project, and in the end, most participants concluded that the definition of bundles were “probably too narrow to capture enough procedures to make bundled payment viable,” according to the study. Sufficient volume, simplified definitions of bundles and better financial risk management for providers should be addressed going forward.

Still, it’s not all bad news, and the pilot, while not successful in spreading bundled payments throughout California, was a valuable learning tool.

“Despite the many challenges, participants continue to be interested in making bundled payments work,” Ridgely said. “The lessons from this project may help future efforts to be more successful.”

Eventually, two insurers dropped out because they believed the bundled payment model in this project would not lead to a redesign of care or lower costs, according to the study. Another decided that bundled payment was incompatible with its primary type of business, which is HMOs using capitation payments.

Only two hospitals eventually signed contracts with health plans to use bundled payments. Hospitals that dropped out cited a lack of need to participate, along with concerns about the time and effort involved. However, two ambulatory surgery centers signed contracts with one health plan.

A high level of interest remains in bundled payments, however, particularly with Medicare providers. According to CMS, “thousands of Medicare providers” are planning some type of project and 105 providers are currently implementing bundled payments.