Bundled or bungled payment? Advice on how to succeed

March 28, 2016 / By Kristine Daynes

As CMS launches its mandatory bundled payment program, payers on the fence may be wondering if it’s time to push their providers toward bundles also. A number of commercial insurers and employers already have episode-based contracts in place.

Bundled payment appears to be a relatively gentle way for payers and hospitals to ease into a radically different payment model. But there is nothing easy about the investments providers must make. Risk-based contracts of any kind require hospitals to make substantial, lasting changes to treatment protocols, supply chain agreements, care pathways, data processes and communications channels. A bundled payment program allows health systems to redesign systems for a narrow set of services before going broader.

Yet bundled payment can complicate the shift toward value-based care. Most existing bundled payment programs focus on services to treat a single disease or major procedure, such as joint replacement. What if the patient who needs hip replacement also has uncontrolled type 2 diabetes or a history of heart failure? Suddenly the bundle design—and all the processes to support it—become more complex. Wouldn’t it be easier to treat the patient with a whole-patient approach similar to managed care?

I asked some of my 3M colleagues for their advice on bundled payment. Here are their suggestions. If you are a payer, the progression of steps can help you make sure it’s the right program for your health plan and provider network. A lot of this advice applies just as well if you are a hospital pulled into mandatory bundled payments or considering a risk-based contract.

How to make bundles work

First things first. Before you attempt to reign costs across the continuum of care, you need to master risk-adjustment for inpatient and ambulatory care. This is the first step toward value-based payment. Before they can succeed with bundled payments, hospitals need to improve the efficiency of their services based on patient severity and be weaned from volume-based rewards.

Risk-adjustment accounts for patient acuity and expected resource use within the fee-for-service system and is the basis for measuring variations in payment, quality outcomes, and case mix among providers. It allows organizations to model total cost of care preliminary to setting fixed fees.

Programs to reduce hospital readmissions and complications encourage providers to develop processes to avoid preventable care. These processes—such as streamlined care pathways, coordination of post-acute care, and evaluation of providers—are critical for success in heftier risk-based programs, such as bundled payment. A program that focuses on readmissions and complications can give providers time to evolve their infrastructure appropriately.

As hospitals begin to manage readmissions and complications more effectively, you can include other types of avoidable care, such as preventable ED visits. Because they can be symptomatic of poor care in other settings, preventable ED visits are one way to gauge the effectiveness of longitudinal care—and to encourage coordination among providers to improve care transitions and disease management.

Understand the clinical health risk of the populations you serve. Value-based care requires a mind shift from managing services to managing people. You cannot control costs unless you know the health needs of your patients from both a clinical and actuarial perspective. This includes consideration for multiple health conditions, behavioral health issues and socioeconomic status—factors that increase the burden of care and complicate “compliance” after patients are discharged.

By risk-stratifying your patient population, you can begin to define appropriate care management programs for each segment (e.g., outpatient management for cohorts with chronic illness, reduced inpatient hospitalization for cohorts with complex medical needs). You can also begin to predict individuals with persistent and emerging high needs.

Although you may start by focusing on hospital care, eventually you want to include primary care physicians (PCPs) and specialists in your value-based care programs. They are the linchpins in directing patients to timely preventative services, physical therapy versus surgery, lower-cost settings versus hospital-based care and transitional care in the appropriate setting.

Physicians assume significant risk by investing in a value-based business model. In spite of any incentives or subsidies you offer, their greatest gains may come from economies of scale and building a larger practice. Your value-based program must be designed to help them succeed not just in delivering higher-quality, lower-cost care, but in reaching a sustainable level of business.

Evaluate provider performance through the continuum of care. Even if only hospitals, PCPs and other physicians may be at risk for payment under your value-based model, you need to understand all cost drivers. Almost half the cost of an episode occurs after a patient is discharged from the hospital. You need to evaluate skilled nursing facilities, home health agencies and rehabilitation facilities to be able to assemble a high-performing network of community partners. Choose them not just based on cost and quality outcomes. You might also consider how well you are able to communicate and share data. If the right channels are in place, your community partners can help you optimize your clinical protocols and pathways.

Ready to bundle?

If, in the end, you opt for bundled payment, you will need to address some practicalities. These include administrative processes such as payment allocation, claims adjudication, inclusions/exclusions, program eligibility and explanation of benefits (EOB) notification. (The complexity of administering a bundled payment program can seem like an awful lot of effort just for knee replacements).

For all the effort, there are benefits to come from a bundled payment program. It encourages collaboration among providers, engages physicians, and promotes efficiency. It can even become a competitive differentiator for the health plans and providers who do it well. However, bundled payment isn’t the only way to achieve these benefits. Many accountable care organizations (ACOs) and patient-centered medical homes (PCMHs) accomplish the same thing. And they can do it more comprehensively for the patient populations they serve. Choose wisely.

Kristine Daynes is marketing manager for payer and regulatory markets at 3M Health Information Systems.