Bundled payment
Encyclopedia
Bundled payment, also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing, is defined as the reimbursement of health care
providers (such as hospitals and physicians) "on the basis of expected costs for clinically-defined episodes of care." It has been described as "a middle ground" between fee-for-service
reimbursement (in which providers are paid for each service rendered to a patient) and capitation
(in which providers are paid a "lump sum" per patient regardless of how many services the patient receives). Bundled payments have been proposed in the health care reform debate in the United States
as a strategy for reducing health care costs, especially during the Obama administration
(2009–present).
's then-new hospital prospective payment system using diagnosis-related group
s may have led to hospitals' discharging patients to post-hospital care (e.g., skilled nursing facilities
) more quickly than appropriate in order to save money. It was therefore suggested that Medicare bundle payments for hospital and posthospital care; however, despite favorable analyses of the idea, it had not been implemented as of 2009.
Bundled payments began as early as 1984 when The Texas Heart Institute
under the direction of Denton Cooley
began to charge flat fees for both hospital and physician services for cardiovascular surgeries. Authors from the Institute claimed that its approach "maintain[ed] a high quality of care" while lowering costs (e.g., in 1985 the flat fee for coronary artery bypass surgery
at the Institute was $13,800 versus the average Medicare payment of $24,588).
Another early experience with bundled payments occurred between 1987 and 1989, involving an orthopedic surgeon
, a hospital (Ingham Regional Medical Center
), and a health maintenance organization
(HMO) in Michigan. The HMO referred 111 patients to the surgeon for possible surgery; the surgeon would evaluate each patient for free. The surgeon and hospital received a predetermined fee for any arthroscopic
surgery performed, but they also provided a two-year warranty
in that they promised to cover any post-surgery expenses (e.g., for four re-operations) instead of the HMO. Under this arrangement, "all parties benefitted financially": the HMO paid $193,000 instead of the $318,538 expected; the hospital received $96,500 instead of the $84,892 expected; and the surgeon and his associates received $96,500 instead of the $51,877 expected.
In 1991, a "Medicare Participating Heart Bypass Center Demonstration" began in four hospitals across the United States; three other hospitals were added to the project in 1993, and the project concluded in 1996. In the demonstration, Medicare paid global inpatient hospital and physician rates for hospitalizations for coronary artery bypass surgery; the rates included any related readmissions. Among the published evaluations of the project were the following:
By 2001, "case rates for episodes of illness" (i.e., bundled payments) were recognized as one type of "blended payment method" (i.e., combining retrospective and prospective payment) along with "capitation with fee-for-service carve-outs" and "specialty budgets with fee-for-service or 'contact' capitation." In subsequent years other blended methods of payment have been proposed such as "comprehensive care payment", "comprehensive payment for comprehensive care", and "complete chronic care" which incorporate payment for keeping people as healthy as possible in addition to payment for episodes of illness.
In 2006-2007 the Geisinger Health System
tested a "ProvenCare" model for coronary artery bypass surgery that included best practices, patient engagement, and "preoperative, inpatient, and postoperative care [e.g., rehospitalizations] within 90 days... packaged into a fixed price." The program received national attention including articles in the New York Times
and the New England Journal of Medicine
in mid-2007. An evaluation published in late 2007 showed that 117 patients who received "ProvenCare" had a significantly shorter total length of stay (resulting in 5% lower hospital charges), a greater likelihood of being discharged to home, and a lower readmission rate compared with 137 patients who received conventional care in 2005.
The Robert Wood Johnson Foundation
gave grants beginning in 2007 for a bundled payment project called PROMETHEUS ("Provider payment Reform for Outcomes, Margins, Evidence, Transparency, Hassle-reduction, Excellence, Understandability and Sustainability") Payment. With support of the Commonwealth Fund
, the project developed "evidence-informed case rates" for various conditions that are adjusted for severity and complexity of a patient's illness. The "evidence-informed case rates" are used to set budgets for episodes of care. If actual quarterly spending by health care providers is under budget, the providers receive a bonus; if actual quarterly spending is over budget, payment to the providers is partially withheld. The model is currently being tested in three pilot sites which are scheduled to end in 2011.
In mid-2008, the Medicare Payment Advisory Commission
made several recommendations along "a path to bundled payment." For one, it recommended that the Secretary of Health and Human Services
examine approaches such as "virtual bundling" (under which providers would receive separate payments, but could also be subject to rewards or penalties based on the levels of expenditures). In addition, it recommended that a pilot program be established "to test the feasibility of actual bundled payment for services around hospitalization episodes for select conditions."
Just before the Medicare Payment Advisory Commission report was released, the Centers for Medicare and Medicaid Services announced a "Medicare Acute Care Episode (ACE) Demonstration" project for bundling payments for certain cardiovascular and orthopedic procedures. The bundling includes only hospital and physician charges, not post-discharge care; by 2009, five sites in Colorado, New Mexico, Oklahoma, and Texas had been selected for the project. In the project, hospitals give Medicare discounts of 1%-6% for the selected procedures, and Medicare beneficiaries receive a $250–$1,157 incentive to receive their procedures in the demonstration hospitals.
Bundled payments for Medicare were a major feature of a November 2008 white paper
by Senator Max Baucus
, chair of the Senate Finance Committee
. The white paper recommended that the Medicare ACE Demonstration "expand to other sites," "focus on other clinical conditions if certain criteria are met," and "include services that are provided post-hospitalization."
As of 2008, Geisinger's ProvenCare program had "attracted interest from Medicare officials and other top industry players" and had been expanded or was in the process of being expanded to hip replacement
surgery, cataract surgery
, percutaneous coronary intervention
, bariatric surgery
, lower back
surgery, and perinatal care. Interest in Geisinger's experience intensified in 2009 when newsmedia reports claimed that it was a model for health care reforms to be proposed by President Barack Obama
and when Obama himself mentioned Geisinger in two speeches.
In July 2009, a Special Commission on the Health Care Payment System in Massachusetts distinguished between episode-based payments (i.e., bundled payments) and "global payments" that were defined as "fixed-dollar payments for the care that patients may receive in a given time period... plac[ing] providers at financial risk for both the occurrence of medical conditions and the management of those conditions." The Commission recommended that global payments "with adjustments to reward provision of accessible and high quality care" (not bundled payments) be used for Massachusetts health care providers. Among the reasons for selecting global payment were its potential to reduce episodes of care and previous experience with this payment method in Massachusetts.
As of 2010, provisions for bundled payments are included in both the Patient Protection and Affordable Care Act
and the Affordable Health Care for America Act
. The former bill establishes a national Medicare pilot program starting in 2013 with possible expansion in 2016, which is consistent with the Obama proposal. The latter bill requires "a plan to reform Medicare payments for post-acute services, including bundled payments."
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
providers (such as hospitals and physicians) "on the basis of expected costs for clinically-defined episodes of care." It has been described as "a middle ground" between fee-for-service
Fee-for-service
Fee-for-service is a payment model where services are unbundled and paid for separately. In health care, it gives an incentive for physicians to provide more treatments because payment is dependent on the quantity of care, rather than quality of care...
reimbursement (in which providers are paid for each service rendered to a patient) and capitation
Capitation (healthcare)
Capitation, is a method of paying health care service providers a set amount for each enrolled person assigned to that physician or group of physicians, whether or not that person seeks care, per period of time....
(in which providers are paid a "lump sum" per patient regardless of how many services the patient receives). Bundled payments have been proposed in the health care reform debate in the United States
Health care reform debate in the United States
The health care reform debate in the United States has been a political issue for many years, focusing upon increasing coverage, decreasing the cost and social burden of healthcare, insurance reform, and the philosophy of its provision, funding, and government involvement...
as a strategy for reducing health care costs, especially during the Obama administration
Health care reforms proposed during the Obama administration
This article is about specific types of system changes that have been proposed during the Obama administration to reform the U.S. health care system. It is not intended to cover specific legislative proposals, which often encompass multiple reform initiatives...
(2009–present).
History
In the mid-1980s, it was believed that MedicareMedicare (United States)
Medicare is a social insurance program administered by the United States government, providing health insurance coverage to people who are aged 65 and over; to those who are under 65 and are permanently physically disabled or who have a congenital physical disability; or to those who meet other...
's then-new hospital prospective payment system using diagnosis-related group
Diagnosis-related group
Diagnosis-related group is a system to classify hospital cases into one of originally 467 groups. The 467th was "Ungroupable." The system of classification was developed as a collaborative project by Robert B Fetter, PhD of the Yale School of Management, and John D Thompson, MPH of the Yale...
s may have led to hospitals' discharging patients to post-hospital care (e.g., skilled nursing facilities
Nursing home
A nursing home, convalescent home, skilled nursing unit , care home, rest home, or old people's home provides a type of care of residents: it is a place of residence for people who require constant nursing care and have significant deficiencies with activities of daily living...
) more quickly than appropriate in order to save money. It was therefore suggested that Medicare bundle payments for hospital and posthospital care; however, despite favorable analyses of the idea, it had not been implemented as of 2009.
Bundled payments began as early as 1984 when The Texas Heart Institute
The Texas Heart Institute
The Texas Heart Institute is a not-for-profit cardiology and heart surgery center located within the Texas Medical Center in Houston, Texas. Founded in 1962 by Dr. Denton A. Cooley, its original charter stated its purpose was “the study and treatment of diseases of the heart and blood vessels...
under the direction of Denton Cooley
Denton Cooley
Denton Arthur Cooley is an American heart surgeon famous for performing the first implantation of a total artificial heart. Cooley is also founder and surgeon in-chief of the Texas Heart Institute, chief of Cardiovascular Surgery at St...
began to charge flat fees for both hospital and physician services for cardiovascular surgeries. Authors from the Institute claimed that its approach "maintain[ed] a high quality of care" while lowering costs (e.g., in 1985 the flat fee for coronary artery bypass surgery
Coronary artery bypass surgery
Coronary artery bypass surgery, also coronary artery bypass graft surgery, and colloquially heart bypass or bypass surgery is a surgical procedure performed to relieve angina and reduce the risk of death from coronary artery disease...
at the Institute was $13,800 versus the average Medicare payment of $24,588).
Another early experience with bundled payments occurred between 1987 and 1989, involving an orthopedic surgeon
Orthopedic surgery
Orthopedic surgery or orthopedics is the branch of surgery concerned with conditions involving the musculoskeletal system...
, a hospital (Ingham Regional Medical Center
Ingham Regional Medical Center
Ingham Regional Medical Center is a hospital in Lansing, Michigan. IRMC is a subsidiary of the McLaren Health Care Corporation, which is an integrated managed care health care organization operating in Michigan...
), and a health maintenance organization
Health maintenance organization
A health maintenance organization is an organization that provides managed care for health insurance contracts in the United States as a liaison with health care providers...
(HMO) in Michigan. The HMO referred 111 patients to the surgeon for possible surgery; the surgeon would evaluate each patient for free. The surgeon and hospital received a predetermined fee for any arthroscopic
Arthroscopy
Arthroscopy is a minimally invasive surgical procedure in which an examination and sometimes treatment of damage of the interior of a joint is performed using an arthroscope, a type of endoscope that is inserted into the joint through a small incision...
surgery performed, but they also provided a two-year warranty
Warranty
In business and legal transactions, a warranty is an assurance by one party to the other party that specific facts or conditions are true or will happen; the other party is permitted to rely on that assurance and seek some type of remedy if it is not true or followed.In real estate transactions, a...
in that they promised to cover any post-surgery expenses (e.g., for four re-operations) instead of the HMO. Under this arrangement, "all parties benefitted financially": the HMO paid $193,000 instead of the $318,538 expected; the hospital received $96,500 instead of the $84,892 expected; and the surgeon and his associates received $96,500 instead of the $51,877 expected.
In 1991, a "Medicare Participating Heart Bypass Center Demonstration" began in four hospitals across the United States; three other hospitals were added to the project in 1993, and the project concluded in 1996. In the demonstration, Medicare paid global inpatient hospital and physician rates for hospitalizations for coronary artery bypass surgery; the rates included any related readmissions. Among the published evaluations of the project were the following:
- In a 1997 analysis, it was estimated that in 1991-1993 the original four hospitals would have had expenditures of $110.8 million for coronary artery bypasses for Medicare beneficiaries, but that the change in reimbursement methodology saved $15.31 million for Medicare and $1.84 million for Medicare beneficiaries and their supplemental insurers, for a total savings of $17.2 million (i.e., 15.5%). Of the total savings, 85%-93% was attributable to inpatient savings and another 6%-11% was attributable to postdischarge savings; furthermore, there was "no diminution in quality."
- A 1998 report to the Health Care Financing Administration (now known as the Centers for Medicare and Medicaid ServicesCenters for Medicare and Medicaid ServicesThe Centers for Medicare & Medicaid Services , previously known as the Health Care Financing Administration , is a federal agency within the United States Department of Health and Human Services that administers the Medicare program and works in partnership with state governments to administer...
) noted that in the five years of the demonstration project the seven hospitals would have had expenditures of $438 million for coronary artery bypasses for Medicare beneficiaries, but that the change in reimbursement methodology saved $42.3 million for Medicare and $7.9 million for Medicare beneficiaries and their supplemental insurers, for a total savings of $50.3 million (i.e., 11.5%). In addition, controlling for patient risk factors, the inpatient mortality rate in the demonstration hospitals declined over the course of the project. The negative aspects of the project included difficulties in billing and collection. - A 2001 paper examining three of the original four hospitals with comparable "micro-cost" data determined that "the cost reductions primarily came from nursing intensive care unit, routine nursing, pharmacy, and catheter lab."
By 2001, "case rates for episodes of illness" (i.e., bundled payments) were recognized as one type of "blended payment method" (i.e., combining retrospective and prospective payment) along with "capitation with fee-for-service carve-outs" and "specialty budgets with fee-for-service or 'contact' capitation." In subsequent years other blended methods of payment have been proposed such as "comprehensive care payment", "comprehensive payment for comprehensive care", and "complete chronic care" which incorporate payment for keeping people as healthy as possible in addition to payment for episodes of illness.
In 2006-2007 the Geisinger Health System
Geisinger Health System
The Geisinger Health System is a physician-led health care system of northeastern and central Pennsylvania with headquarters located in Danville, Pennsylvania.-History of Geisinger:...
tested a "ProvenCare" model for coronary artery bypass surgery that included best practices, patient engagement, and "preoperative, inpatient, and postoperative care [e.g., rehospitalizations] within 90 days... packaged into a fixed price." The program received national attention including articles in the New York Times
and the New England Journal of Medicine
New England Journal of Medicine
The New England Journal of Medicine is an English-language peer-reviewed medical journal published by the Massachusetts Medical Society. It describes itself as the oldest continuously published medical journal in the world.-History:...
in mid-2007. An evaluation published in late 2007 showed that 117 patients who received "ProvenCare" had a significantly shorter total length of stay (resulting in 5% lower hospital charges), a greater likelihood of being discharged to home, and a lower readmission rate compared with 137 patients who received conventional care in 2005.
The Robert Wood Johnson Foundation
Robert Wood Johnson Foundation
The Robert Wood Johnson Foundation is the United States' largest philanthropy devoted exclusively to health and health care; it is based in Princeton, New Jersey. The foundation's mission is to improve the health and health care of all Americans...
gave grants beginning in 2007 for a bundled payment project called PROMETHEUS ("Provider payment Reform for Outcomes, Margins, Evidence, Transparency, Hassle-reduction, Excellence, Understandability and Sustainability") Payment. With support of the Commonwealth Fund
Commonwealth Fund
The Commonwealth Fund is a private U.S. foundation whose stated purpose is to promote a high-performing health care system that achieves better access, improved quality, and greater efficiency, especially for society's most vulnerable.-History:...
, the project developed "evidence-informed case rates" for various conditions that are adjusted for severity and complexity of a patient's illness. The "evidence-informed case rates" are used to set budgets for episodes of care. If actual quarterly spending by health care providers is under budget, the providers receive a bonus; if actual quarterly spending is over budget, payment to the providers is partially withheld. The model is currently being tested in three pilot sites which are scheduled to end in 2011.
In mid-2008, the Medicare Payment Advisory Commission
Medicare Payment Advisory Commission
The Medicare Payment Advisory Commission is an independent US federal body. MedPAC was established by the Balanced Budget Act of 1997 . Its primary role is to advise the US Congress on issues affecting the administration of the Medicare program...
made several recommendations along "a path to bundled payment." For one, it recommended that the Secretary of Health and Human Services
United States Secretary of Health and Human Services
The United States Secretary of Health and Human Services is the head of the United States Department of Health and Human Services, concerned with health matters. The Secretary is a member of the President's Cabinet...
examine approaches such as "virtual bundling" (under which providers would receive separate payments, but could also be subject to rewards or penalties based on the levels of expenditures). In addition, it recommended that a pilot program be established "to test the feasibility of actual bundled payment for services around hospitalization episodes for select conditions."
Just before the Medicare Payment Advisory Commission report was released, the Centers for Medicare and Medicaid Services announced a "Medicare Acute Care Episode (ACE) Demonstration" project for bundling payments for certain cardiovascular and orthopedic procedures. The bundling includes only hospital and physician charges, not post-discharge care; by 2009, five sites in Colorado, New Mexico, Oklahoma, and Texas had been selected for the project. In the project, hospitals give Medicare discounts of 1%-6% for the selected procedures, and Medicare beneficiaries receive a $250–$1,157 incentive to receive their procedures in the demonstration hospitals.
Bundled payments for Medicare were a major feature of a November 2008 white paper
White paper
A white paper is an authoritative report or guide that helps solve a problem. White papers are used to educate readers and help people make decisions, and are often requested and used in politics, policy, business, and technical fields. In commercial use, the term has also come to refer to...
by Senator Max Baucus
Max Baucus
Max Sieben Baucus is the senior United States Senator from Montana and a member of the Democratic Party. First elected to the Senate in 1978, as of 2010 he is the longest-serving Senator from Montana, and the fifth longest-serving U.S...
, chair of the Senate Finance Committee
United States Senate Committee on Finance
The U.S. Senate Committee on Finance is a standing committee of the United States Senate. The Committee concerns itself with matters relating to taxation and other revenue measures generally, and those relating to the insular possessions; bonded debt of the United States; customs, collection...
. The white paper recommended that the Medicare ACE Demonstration "expand to other sites," "focus on other clinical conditions if certain criteria are met," and "include services that are provided post-hospitalization."
As of 2008, Geisinger's ProvenCare program had "attracted interest from Medicare officials and other top industry players" and had been expanded or was in the process of being expanded to hip replacement
Hip replacement
Hip replacement is a surgical procedure in which the hip joint is replaced by a prosthetic implant. Hip replacement surgery can be performed as a total replacement or a hemi replacement. Such joint replacement orthopaedic surgery generally is conducted to relieve arthritis pain or fix severe...
surgery, cataract surgery
Cataract surgery
Cataract surgery is the removal of the natural lens of the eye that has developed an opacification, which is referred to as a cataract. Metabolic changes of the crystalline lens fibers over time lead to the development of the cataract and loss of transparency, causing impairment or loss of vision...
, percutaneous coronary intervention
Percutaneous coronary intervention
Percutaneous coronary intervention , commonly known as coronary angioplasty or simply angioplasty, is one therapeutic procedure used to treat the stenotic coronary arteries of the heart found in coronary heart disease. These stenotic segments are due to the build up of cholesterol-laden plaques...
, bariatric surgery
Bariatric surgery
Bariatric surgery includes a variety of procedures performed on people who are obese. Weight loss is achieved by reducing the size of the stomach with an implanted medical device or through removal of a portion of the stomach or by resecting and re-routing the small intestines...
, lower back
Low back pain
Low back pain or lumbago is a common musculoskeletal disorder affecting 80% of people at some point in their lives. In the United States it is the most common cause of job-related disability, a leading contributor to missed work, and the second most common neurological ailment — only headache is...
surgery, and perinatal care. Interest in Geisinger's experience intensified in 2009 when newsmedia reports claimed that it was a model for health care reforms to be proposed by President Barack Obama
Barack Obama
Barack Hussein Obama II is the 44th and current President of the United States. He is the first African American to hold the office. Obama previously served as a United States Senator from Illinois, from January 2005 until he resigned following his victory in the 2008 presidential election.Born in...
and when Obama himself mentioned Geisinger in two speeches.
In July 2009, a Special Commission on the Health Care Payment System in Massachusetts distinguished between episode-based payments (i.e., bundled payments) and "global payments" that were defined as "fixed-dollar payments for the care that patients may receive in a given time period... plac[ing] providers at financial risk for both the occurrence of medical conditions and the management of those conditions." The Commission recommended that global payments "with adjustments to reward provision of accessible and high quality care" (not bundled payments) be used for Massachusetts health care providers. Among the reasons for selecting global payment were its potential to reduce episodes of care and previous experience with this payment method in Massachusetts.
As of 2010, provisions for bundled payments are included in both the Patient Protection and Affordable Care Act
Patient Protection and Affordable Care Act
The Patient Protection and Affordable Care Act is a United States federal statute signed into law by President Barack Obama on March 23, 2010. The law is the principal health care reform legislation of the 111th United States Congress...
and the Affordable Health Care for America Act
Affordable Health Care for America Act
The Affordable Health Care for America Act was a bill that was crafted by the United States House of Representatives in November 2009. At the encouragement of the Obama administration, the 111th Congress devoted much of its time to enacting reform of the United States' health care system...
. The former bill establishes a national Medicare pilot program starting in 2013 with possible expansion in 2016, which is consistent with the Obama proposal. The latter bill requires "a plan to reform Medicare payments for post-acute services, including bundled payments."
Advantages
Advocates of bundled payments note:- Unlike fee-for-service, bundled payment discourages unnecessary care, encourages coordination across providers, and potentially improves quality.
- Unlike capitation, bundled payment does not penalize providers for caring for sicker patients.
- Considering the advantages and disadvantages of fee-for-service, pay for performance, bundled payment for episodes of care, and global payment such as capitation, Mechanic and Altman concluded that "episode payments are the most immediately viable approach."
- Researchers from the RAND Corporation estimated that "national health care spending could be reduced by 5.4% between 2010 and 2019" if the PROMETHEUS model for bundled payment for selected conditions and procedures were widely used. This figure was higher than for seven other possible methods of reducing national health expenditures. In addition, RAND found that bundled payments would decrease financial risk to consumers and would decrease waste.
Disadvantages
The drawbacks of a bundled payment approach include:- The scientific evidence in support of it has been described as "scant." For example, RAND concluded that its effect on health outcomes is "uncertain."
- It does not discourage unnecessary episodes of care; for example, physicians might hospitalize some patients unnecessarily.
- Providers may seek to maximize profit by avoiding patients for whom reimbursement may be inadequate (e.g., patients who do not take their drugs as prescribed), by overstating the severity of an illness, by giving the lowest level of service possible, by not diagnosing complications of a treatment before the end date of the bundled payment, or by delaying post-hospital care until after the end date of the bundled payment.
- Hospitals may seek to maximize profit by limiting access to specialists during an inpatient stay.
- Because one provider may outsourceOutsourcingOutsourcing is the process of contracting a business function to someone else.-Overview:The term outsourcing is used inconsistently but usually involves the contracting out of a business function - commonly one previously performed in-house - to an external provider...
part of the care of a patient to other providers, it may be difficult to assign financial accountability for a given bundled payment. - There is an administrative and operational burden, for example in establishing fair compensation rates. Small sample sizes and incomplete data may cause difficulties in calculation of proper rates for bundled payments. If rates are set too high, providers may provide unnecessary services; if rates are set too low, providers may experience financial difficulties or may provide inadequate care.
- Some types of illnesses may not fall neatly into "episodes."
- It is possible that one patient may have multiple bundles that overlap each other.
- Academic health centers, which emphasize research, teaching, and new technologies, may be disadvantaged by the payment scheme.
- Providers risk large losses, for example if a patient experiences a catastrophic event. A complex "reinsurance mechanism" may be needed to convince providers to accept bundled payments.