Doctor greating patient

Healthcare Reform

Bundled Payments Tested for Reducing Costs and Payment Headaches

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Doctor greating patient

Physicians and insurers move toward providing medical care — and bills — in one comprehensive package. 

When patients go to Twin Cities Orthopedics (TCO) in Minnesota for a total knee replacement, they get a pleasant surprise. Instead of dealing with a steady trickle of bills from the various caregivers that provided treatment over the course of the hospital visit, TCO takes care of everything from start to finish. When the medical bill comes due, there is one total — and often smaller — price to pay.

Known as “bundling,” it’s one of the biggest trends in healthcare. In February, more than 450 healthcare organizations across the country joined a Centers for Medicare & Medicaid Services program called Bundled Payments for Care Improvement. During the next three years, they will test whether bundling medical services for seniors will streamline care and reduce costs while boosting quality.

The movement toward bundling stems from steady demand to improve outcomes and provide more efficient care. That means moving away from the fee-for-service model in which providers get paid for all the care they give, regardless of results. With bundling, providers take greater responsibility for more of a patient’s care; in turn they receive a bigger share of the payment if they coordinate care efficiently and prevent complications, explains Francois de Brantes, executive director of the nonprofit Health Care Incentives Improvement Institute in Newtown, Conn.

Many insurers and providers have adopted bundled care both for episodic events like surgery and for treating patients with chronic diseases for a designated period of time. UnitedHealthcare offers bundled services for hip and knee replacements and for treating breast, lung and colon cancers, in which it pays oncologists a set price for a standard treatment regimen. Cigna, Humana, Aetna and several regional Blue Cross Blue Shields have bundled care programs for some groups of doctors and hospitals.

In addition, Mayo Clinic joined Florida Blue in December 2012 to offer bundled knee replacement surgery in that state in an effort to streamline care. Their bundled service includes a set price for the procedure, anesthesia, medication, imaging, supplies, nursing care and office visits.

TCO, a practice with 27 clinics across the Minneapolis-St. Paul area, launched its Excel program in June 2012. The bundling program gives TCO more control over all of its patients’ care during the knee replacement and makes the entire process more efficient, effective and less expensive, Justina Lehman-Lane, a doctor of nursing who oversees Excel, told HealthBiz Decoded.

With about 25 patients going through the program so far, TCO found that it could cut the typical cost of a total knee replacement almost in half, from $40,000 to $21,000. Patients have the procedure in a day-surgery center and recover in a private suite at an assisted living facility under the care of a nurse practitioner. This reduces costs by eliminating hospital overhead and services from many different providers; TCO handles everything under one roof, from consultation and post-surgical care to pain management and physical therapy. Best of all, many patients know ahead of time what they will owe.

“Our physicians recognized that patients who are requiring total joint replacements are getting younger, and they don’t need the hospital stay like our former patient population,” said Lehman-Lane, who says TCO eventually will bundle hip, shoulder, and ankle replacements. “We’re attempting to decrease cost while still having good outcomes and good patient satisfaction by having the surgeon be responsible for all of the patient care.”

The concept of bundled services has been around since the late 1960s, and it’s used widely around the world. Healthcare entities started adopting bundling on a larger scale about four years ago as they figured out a practical, scalable way to implement bundled payment systems. In addition, technology became available to develop fair bundled pricing based on typical care instead of costly care due to complications, said de Brantes.

The Affordable Care Act coupled with pressure from consumers, who now shoulder a larger percentage of their medical bills, also prompted payers and providers to expand bundling. Patients support bundling, favoring high-quality care that’s dictated by best practices and smaller, more streamlined medical bills, said de Brantes. For their part, physicians like bundling because it gives them more predictable payments and greater responsibility and incentives for providing coordinated, high-quality treatment, he said.

For example, when physicians know there is a $7,000 pot for treating someone with diabetes and coronary artery disease, they will better coordinate care with other providers to eliminate duplication and unnecessary office visits. They can earn a larger share of that fee — and more than they were making before — by preventing infections or hospital readmissions. Providers also get paid for things they were doing previously, like follow-up calls or weekly medication checks, which weren’t reimbursed even though they often improve outcomes.

Expanding bundling to chronic care, as well as episodic care like knee replacements, has warmed physicians to the idea. “We have a completely backward incentive that the better I manage the patient, and the more resources I expend, the less payment I have. It’s crazy and upside down,” adds de Brantes. “With bundling you establish that the patient has a condition, and then the physician has accountability to manage those patients.

If preliminary bundling succeeds at cutting costs without harming patient outcomes, it could be one of the most promising tools of healthcare reform.