Bundled Payment Models

For those of us living in cold climates the idea of an all-inclusive beach vacation is something we dream about every winter. Making one single payment that covers your flight, airport transfer, hotel stay, and meals is great. Not to mention the "free" mini-bar in your room that continually gets restocked with beer, Fanta, and Oreos. 😋 Sure there are some add-on options available, but you can definitely have a nice vacation without having to add the extras.

In healthcare, the bundled payment model is similar in concept to the all-inclusive resort only it covers a 'package' of health services.

How Bundled Payments Work

As an alternative to fee-for-service (FFS) and capitation, bundled payments have been introduced in healthcare systems around the world. With this model the payer reimburses the provider or health system for all services, procedures, tests, medications, etc. within a set of defined parameters for each individual patient. The parameters may be focused on health conditions or a specific type of service over time. These parameters typically involve multiple care givers, and may also include multiple organizations. Common examples include: organ transplantation, lasik eye surgery, and preventive care services. The big difference between this model and a capitated payment model is that outcomes are also considered and reimbursements directly correlate to care being provided. (Remember with a capitation model, payments are made regardless of whether any care was given within the timeframe.)

With the reimbursement, the organization responsible for overseeing care has the freedom to utilize the money as they deem appropriate. If they do not use all of the funds within the timeframe covered they keep the remainder as profit. If the organization spends more than the bundled payment value they, in most instances, will incur the full cost difference. To be effective, bundled payments should follow a set of key principles.

• They should cover the entire scope of services related to the bundle parameters.
• Both the patient and the provider should agree that the scope of services has been adequately addressed with no large gaps.
• Payments should be adjusted for risk. Meaning they should take into consideration some key complexities that can arise for patients with comorbidities and not be a flat fee for all patient types.
• Bundled payment values must leave room for a fair and effective profit for the organization responsible for providing the services.
• There must be some form of outcome measurement in place that is directly tied to the reimbursement model. This will ensure that there is a balance between services providing care to patients and improving outcomes over time.

I mentioned above that if spending exceeds the bundled payments, the organization has to incur the additional costs in most cases. The exception to this is when the patient requires care that falls outside of the intended scope of services, or where catastrophic and unpredictable events occur. Should this occur, for a bundled payment system to be effective, a provision called stop-loss needs to be in place. This is a specific type of insurance that is meant to deal with excessive cost expenditures that could not have been easily predicted or prevented. (Stop-loss insurance is used across a wide variety of industries around the world.) If you fail to put stop-loss provisions in place, payers are forced to adjust costs for everyone purchasing coverage with this model to cover all these potential unknowns. (Like they do with the capitation model.) This includes both individuals purchasing healthcare insurance, as well as government agencies making payments on behalf of their citizens.

The Benefits of Bundled Payments

In theory, the bundled payment model should lead to more integrated, patient-centric care. Services would be provided by multidisciplinary teams, with each individual working at the top of their scope. There is no incentive for performing unnecessary tests or encouraging patients to undergo procedures that are unlikely to improve outcomes. Preventive and wholistic care should prevail over reactive, sick-based care as this would drive down provider/system costs. Leaving sufficient room to still have profit.

The vision for this model has patients receiving effective care based on best-practice. Suppliers are rewarded for developing safe and effective products, since those would be utilized more often. Providers have the opportunity to earn reasonable profits and are encouraged to decrease waste within the system. And finally, payers theoretically can reduce their expenditures as providers/systems turn their focus to primary and preventive care that is aimed at keeping their population healthier.

Challenges with the Bundled Payments

Like everything, the bundled payment model comes with some challenges. Two of the most significant ones are things that everyone could see coming. First, there are challenges around defining the conditions and care cycles that bundles should be wrapped around. Second, there are some very real concerns and difficulties around managing a complete care cycle for a patient, when some of the providers and services needed are outside the control of the coordinating organization. For example, if a bundled payment model is in place for something like a knee replacement, it is difficult to ensure a positive outcome if the post-op therapy is being administered by another entity.

While there hasn't been a breakthrough in getting all providers, payers, and organizations to agree on standard definitions, there are some measures that are being put in place to address the second challenge when bundled payments are in place. For acute-care facilities there have been some adjustments made to the discharge process to help patients better understand the next steps in their care path. For example, some facilities leverage pharmacists to review home medications to increase understanding. Follow-up calls may also be made to check in on patients several days post-discharge to ensure that all instructions are being followed and to address any potential issues that may arise. All to reduce the risk of readmission for complications which would need to be covered under the original bundle payment.

Some hospitals have started to leverage more hospitalists and nurse navigators to coordinate care events. Much in the same way that primary care providers or navigators are being tagged to coordinate care for multi-disciplinary outpatient bundled services. The industry also continues to see increased mergers and acquisitions that appear to line up with complete care paths. Along with the creation of some tailored facilities with the ability to focus entirely on bundled care services, such as joint replacement centres.

It's difficult to say if the bundled payment model will be more successful that a capitation or fee for service model. As the industry strives to lower costs and improve care, what we are likely to see is quite a bit of experimentation and a blended approach until we can finally land on one that works.