Medicare 'Bundled Payments' Improve Health, Save Money

July 8, 2016

A Medicare program that began on April 1 requires about 800 hospitals to “bundle” payments for knee and hip replacements. Long in the making, this effort should point the way to more coordinated, comprehensive care for patients and save money in the process.

Hospitals and other health care organizations work together much like the digital technology of yesterday — not very well. A decade ago, you probably had an armful of digital devices: a mobile phone, camera, contact organizer, game system, computer, and the like. It took a good deal of specialized knowledge to get these devices to work together as a seamless system, if it could be done at all. Today’s smartphones bundle these functions and more into a single, compact device.

In health care, there are multitudes of providers, care settings, prescription drug plans, and complicated rules for insurance authorization and benefits authorization. Many consumers feel like they need an advanced degree to understand how the different components of health care work together.

Take joint replacement as an example. Say you need to have a knee replaced. You’d like your care to be a single, coordinated event. But it doesn’t often happen that way. Instead, you might have the surgery in one hospital, then get follow-up care, rehabilitation, and other related treatments elsewhere. Your health care providers often don’t know where you go for follow-up care, which prevents them from talking with each other, and the bills from each are separate.

There’s little incentive for them to integrate the process into a single “episode of care,” meaning surgery through recovery. In fact, the current fee-for-service system encourages the opposite, pushing providers to compete with one another for dollars rather than to collaborate. Those that do the right thing by helping patients avoid repeat hospital stays or lowering the cost of care are actually at a financial disadvantage.

The new Medicare program, called comprehensive care for joint replacement, will give 800 hospitals in 67 major metropolitan areas a single, set payment. This bundled payment will cover everything from the surgery through 90 days of recovery. If the health care team delivers services efficiently and with a high-quality outcome, it keeps a portion of the savings generated as a bonus. If the cost of the care goes above the set price, the team must pay some of the overrun back to Medicare.

Bundling works

A number of hospitals that work with my company, Premier Inc., have been experimenting with bundled payments since 2010. We’ve learned that coordinating providers across an episode of care, rather than organizing them service by service, helps deliver the highest quality, most cost-effective patient care.

Bundling creates incentives for physicians, nurses, surgeons, rehabilitation professionals, and others to collaborate across settings and specialties. When it works well, everyone — especially the patient — benefits. Bundled payments eliminate inefficiencies, prevent duplication of effort, and let providers keep better track of patients as they move through different care settings on their way to recovery. We’ve seen this coordination help cut length of hospital stays, reduce surgical complications, and lower readmission rates. All of this saves money.

A New England Journal of Medicine study identified bundled payments as having greater potential for reducing health care spending than efforts like enhanced primary care, electronic health records, and chronic disease management. Other experts estimate that moving to bundled payments for just six chronic conditions (like diabetes and asthma) and four conditions requiring hospitalization (like heart attack and joint replacements) could shave between 7 percent and 35 percent off the costs associated with avoidable complications by providing higher-quality, more collaborative care.

Earlier bundled payment demonstrations have been successful. One for heart bypass surgery improved care, lowered death rates following the operation, and reduced costs by 10 percent. Another for bundling for cardiac and orthopedic procedures also improved quality and lowered costs.

All are signs that bundled payments work not just in the public sector but with private payers as well. In fact, in an early bundling pilot with orthopedic surgeons, Baystate Health, the Visiting Nurse Association, and Health New England, costs per case for covered orthopedic procedures were reduced by $1,700.

Medicare has been testing bundled payments for more than 25 years. I hope that the joint replacement demonstration will move us further and faster toward national bundled payment for all appropriate conditions. It’s a policy change that is long overdue, and vital to ensure a sustainable future for the Medicare program and for community health.

Susan DeVore is president and CEO of Premier, Inc., a health care improvement company that includes an alliance of approximately 3,600 US hospitals and 120,000 other providers.

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