While bundled payments for those on Medicare and Medicaid was originally intended to make healthcare providers more accountable for the quality and cost of their services, that hasn’t been the result. Instead, the system has presented issues for providers, hospitals, and patients.
Medicare and Medicaid have tried many different ideas over the years, including ACOs, but bundled payments have been the most scrutinized for their unintended consequences. Hospitals, in particular, have had a tough time dealing with what is an imbalanced system.
Why Were Bundled Payments Introduced?
Bundled payments were created to provide incentives to providers. They gave providers a reason to keep healthcare costs reasonable and simple. They also encourage different providers to work together and to use evidence-based regulations in their implementation of healthcare guidelines. These alternative payment models brought specialists into the fold, putting more emphasis on making use of these experts when needed.
Another effect of creating bundled payments was that healthcare “products” were more clearly defined. This made it easier for patients to compare the price and quality of services that providers were offering. They could select an entire batch of services for one single price, which is an attractive concept.
The New Medicare Model and Bundled Payment Problems
Under the new Medicare model, there are four potential issues with bundled payments:
Problem 1: it’s difficult for providers to define the care included in these bundles and track which care is administered to patients. This introduces a financial risk that will harm hospitals in particular. There are some situations in which a bundle may not even be the correct solution. One patient may benefit from a bundled payment, but another may pay more than they should for a procedure. Providers cannot adjust payments – it’s an all or nothing situation.
On the other hand, if the cost of a procedure is higher than the overall cost of the bundle, the provider is still only allowed to bill the bundle price. They have to absorb the difference in price themselves.
For example, in patients with different comorbidities, those who are at extremely high risk pay more for their bundle. There are cost management issues here that providers cannot control, including the patients’ multiple chronic illnesses, how those illnesses interact, and patient actions that lead to adverse outcomes. This could lead to hospitals losing a large amount of money per patient, especially those that are older or seriously ill.
Problem 2: Bundled payments both encourage and inhibit coordinated care. For example, a patient who suffered from diabetes and asthma would need several specialists. The problem is that these specialists may shift their bundles. The endocrinologist, the patient, sees for diabetes may try to move some costs from their bundle to the breathing specialist’s bundle. In this way, bundles can encourage care, but also inhibit some other types of care.
The advantage to this is that it does encourage hospitals and other care providers, including rehab centers, to work together. On the downside, it does create this perception for specialists to see a patient as one illness or treatment plan, not as a whole person. This could make it more difficult for these providers to see what patients and their insurance plans are being charged overall.
Problem 3: Bundled payments may encourage providers to compete for patients and their money. For example, a patient who only needs a knee replacement could be more profitable to a hospital than one who needs a knee replacement and is dealing with lung disease. The first patient’s bundle will net the hospital more money overall.
This can lead to providers selecting patients based on how much money they may make from that patient. Risk adjustment can help mitigate this, but it’s not a perfect solution. It has to be specific to each patient. The work involved in monitoring risk adjusters would also add to administrative costs that many see as already out of control.
Problem 4: Bundled payments may lower the success of payment models that focus on risk-sharing. ACOs, which are a type of this model, may have to assume all of the responsibility for a patient’s care during a specific period, including any care from specialists. Providers receive additional revenue since the share in the insurance company’s basis profits, which encourages providers to coordinate their care with others, while also requiring ACOs to bring in savings somewhere.
For example, a provider may not benefit from a Medicare bundle because these bundles did not provide appropriate reimbursement for certain patients until recently. Specialists often do their best to provide those procedures that easily generate savings, which leaves ACOs to try to find savings somewhere else.
The reason providers do not like DRGs and medicare bundles is that up until recently they were not severity indexed and did not reimburse appropriately for high-complexity patients.
Is There a Solution?
If Medicare bundles are to become useful for all providers, the CMS needs to provide some form of risk adjustment. The traditional method of determining this didn’t take patient complexity into account and only used past-price comparisons, which does not work. A one-size-fits-all approach could encourage hospitals to reduce access to healthcare to these complex patients, leaving those who have the highest need for healthcare with yet another barrier to it. Some form of health care reform is necessary to ensure this does not happen.
There are some ways that providers can account for patients with more complex medical needs. The Regional Model, for example, does provide larger payments to hospitals where the costs fall below the average cost for the region. Overall, the rules that govern responsibility for patients that makes use of both a bundled payment and an ACO need to be revisited.
The CMS needs to look at the new Medicare Payment Model and ensure that the bundled payments offered are not undermining population-based models such as ACOs. Instead, they should encourage providers to use bundles alongside ACOs to take on patient responsibility.