Bundled payments in the U.S. healthcare system have become top of mind for many healthcare stakeholders and could have a major impact on payment reform. TripleTree has been evaluating the bundled payments market and engaged in discussions on the topic with hospital systems, physicians, and policy experts, among other constituents. Coming off those interactions we believe this could evolve into a large market very quickly and we wanted to share some initial viewpoints on The Bundled Payments for Care Improvement (BPCI) initiative established by The Centers for Medicare & Medicaid Services (CMS).
Defining Bundled Payments
The BPCI initative is an opt-in program coordinated by CMS. Providers, who apply to participate in the three to five year initiative, are put through an application process and accepted based on their ability to manage the program requirements.
The BPCI initative establishes that providers are paid a set fee by CMS for a single episode of care for a single patient, initially across up to 48 different episodes of care including congestive heart failure, pneumonia and stroke. The program is flexible and allows providers to pick and choose which episodes they want to manage via the BPCI initative.
The BPCI initative is important because it upends the traditional fee-for-service (FFS) model where providers are paid based on how much care they provide rather than the care quality. Under the FFS model a typical hip replacement procedure costs CMS approximately $30,000 and can generate dozens of claims (consultations, diagnosis, surgery, prosthetic implants, and rehabilitation) with each provider seeking to maximize revenue in the value chain without incentives to coordinate care. This fragmented payment system has been in place for decades and Medicare alone covers payment for over 48 million Americans while consuming $556 billion per year of U.S. healthcare spending.
Conversely, the BPCI initative sets a target payment amount from CMS to providers based on average FFS spending for a defined episode of care but at a discount price, enabling CMS to spend less per care episode and allowing providers to profit through a gainshare from the savings achieved through more efficient care delivery at a lower cost. In theory, the gainshare establishes a financial incentive to hospitals, physicians, and other care providers to work together to better coordinate and share information about patients when they are in the hospital and after they are discharged, potentially providing significant reduction in costs associated with re-hospitalization, unnecessary care, and administration.
Why Are Bundled Payments Important?
The launch of the BPCI initative means providers truly have an incentive to improve care because they share in the risk and profit generated by more efficient care delivery. Furthermore, bundled payments appear to be a high priority within CMS and many commercial payers who are seeking to streamline payments for common and high cost episodes, create greater transparency into spend and most importantly negotiate a set fee at a discount to what they pay today. The BPCI initative has received bipartisan support and Forbes.com recently published an article on bundled payments that quoted the Obama administration’s support of the program and its comments that some 500-plus providers plan to participate.
- Bundled Payments vs. ACOs: While Accountable Care Organizations (“ACOs”) were born out of a similar concept, they have some major differences. ACOs are all-encompassing for providers, who typically manage all their patients under the constraints of the ACO. The BPCI initative fundimentally changes the way providers are paid and it signal the first time that CMS has supported sweeping gainsharing for select episodes of care between hospitals, physicians and other stakeholders.
Impact on the Health System
In discussions with health systems, we have learned many are evaluating the bundled payment model as an alternative to becoming ACOs. Because bundled payments has providers on the hook for the care they deliver both inside the hospital and post-discharge, it requires providers to evaluate whether their current model is adequate to manage new payment models. Many providers we talked to have decided to undergo care redesign to improve how physicians, nurses, family members and outpatient facilities communicate, share information and institutionalize care protocols. We spoke with several physicians who will be part of the program and it appears that many will hold judgement until they see if the gainshare and other benefits will outweigh the potential inconvience of redesigning care.
Clearly the gainshare opportunity is a key driver for the program but progressive providers and physicians are seeing the writing on the wall that the healthcare system is perminantly changing and they acknowledge the care redesign imposed by bundled payments will be a future requirement for providers, regardless of how payment reform ultimately unfolds.
Today we won’t speculate how drastically bundled payments could impact the healthcare system, but long-term success will be measured by the ability of providers to execute on care redesign initatives and demonstrate the programs value to CMS with improvements in care and lower costs. We’ll be watching closely as CMS plans to go-live with the program later this year.
Let us know what you think.