Bundled Payments Systems Part of Healthcare Reform

Las Vegas—If providers are reimbursed through bundled payments there could be an estimated $17.8 billion in Medicare savings through 2019, mainly from a reduction in readmissions to hospitals, according to Jonathan W. Pearce, MBA, director at DGA Partners, a healthcare management consulting firm. Mr. Pearce spoke at the Fall Managed Care Forum during a session titled Running the Numbers on Bundled Payments. Bundled payments have been proposed through the Patient Protection and Affordable Care Act (HR 3590) and are defined as single payments for selected conditions based on expected costs. The payments would include 3-day preadmission and 30-day postdischarge services and would be paid to a single entity, including hospitals, physician groups, skilled nursing facilities, and home health aides. The reform bill mandates that a national pilot program for bundled payments in the Medicare population be implemented by January 1, 2013. An interim report will be published after 2 years and a final report after 3 years, with a goal of having the final implementation on January 1, 2016. Mr. Pearce said a pilot program could be expanded nationally without the need for further legislation. Mr. Pearce said entities would provide services such as acute inpatient care, outpatient care (including in emergency departments), physicians’ care delivered in and out of an acute care hospital, and post-acute care such as home health services, skilled nursing services, inpatient rehabilitation services, and inpatient hospital services furnished by a long-term care hospital. Conditions that may be part of a bundled payments system include acute myocardial infarction, bacterial pneumonia, breast cancer, cerebrovascular disease, chronic obstructive pulmonary disease, congestive heart failure, diabetes, hip fractures, and lower back pain. According to Mr. Pearce, bundled payments will help payers by reducing fee-for-service incentives for increased utilization, reducing overall provider payments, and avoiding disincentives to give unnecessary care. Providers would also benefit from bundled payments because they create common economic interests among providers, reduce health system costs, and eliminate conflicting utilization incentives. There will also likely be several requirements for organizations hoping to participate in a bundled payments system, including submitting an application to provide and direct services for applicable conditions; offering an adequate choice of providers for services and suppliers; providing a structure to distribute payments to providers; promoting care coordination, medication reconciliation, discharge planning, transitional care services, and other patient-centered activities; being held accountable for quality, cost, and overall care; reporting quality measures for episodes of care and post-acute care; and submitting data through electronic health records. Mr. Pearce mentioned 2 Medicare bundled payment demonstration projects. The Acute Care Episode (ACE) project included patients in 28 cardiac and 9 orthopedic diagnosis-related groups (DRGs) at 5 hospitals. A single payment was made to the entity, and hospitals made discounted bids to the Centers for Medicare & Medicaid Services (CMS) that ranged from 4% to 10%. The beneficiaries received 50% of the CMS savings, and cost savings of less than or equal to 25% of the fee schedule could be shared with physicians. Meanwhile, the Heart Bypass Center project included 7 institutions and 2 DRGs. Fixed discounts were negotiated with the hospitals, and CMS made a single payment. The project also allowed gainsharing, which involved payments from hospitals to physicians for assistance in generating cost savings. Mr. Pearce outlined a few characteristics he believes would be part of the bundled payments pilot system. As in the ACE project, the pilot program would likely include all patients with selected conditions. He also speculated that discounts may be required, gainsharing may be allowed, and payments to beneficiaries may be made. In the ACE project, the maximum patient payment was $1157, although most payments were between $300 and $400. The bundled payments demonstration projects generated reaction from many physicians, according to Mr. Pearce, who said >90% of physicians met the gainsharing criteria. Mr. Pearce said the feedback included that it was important to bring physicians on early in the project; nonparticipating physicians had increased interest as the programs progressed; hospitals consistently made up shortfalls in physician budgets; and active surgeon involvement in patient management led to improvements in care. Physicians also had a few issues with the project. Some had ethical concerns regarding gainsharing and felt pressure when choosing the prosthetics to use. Meanwhile, consulting physicians saw a significant decline in consultation, and the consultations they did have were more complex than usual. In addition, the physicians’ share of bundled payments had to be significantly recalculated, with the hospitals making up any differences. In many cases, the projects led to cost savings for hospitals. The ACE project had an estimated savings of $780,000, while the Heart Bypass Center project reduced intensive care unit stays by 1 day and routine stays by 2 to 3 days and lowered the average cost of a heart bypass by 8.5%. Administrative issues should not be overlooked, according to the physicians. They recommended hiring a full-time case manager who would be responsible for paying physician claims, recording quality outcomes, and reporting results to CMS on a quarterly basis. They also said it is important to accurately track costs, facilitating more accurate contracting and cost justification to insurers.