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Healthcare Reform

Keeping Bundled Payments From Un-bundling

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As the United States moves closer to the reforms to be implemented under the Affordable Care Act, many insurers and healthcare providers are preparing for the shift from fee-for-service payments to bundled-payment models.

Bundled payment initiatives — providing care and billing in a comprehensive package for the treatment of one condition or ailment, instead of piecewise for each test and doctor visit — seems like a “win-win” proposition for stakeholders. It promises better coordination between providers, fewer redundancies in service delivery, reduced overall costs and better values for healthcare consumers. But ironing out payment logistics has proven to be a formidable task.

The process is “still in its early experimentation stage,” said Peter S. Hussey, a policy researcher for RAND Corporation, who pointed to CMS’ implementation of their bundled payment program earlier this year. About 450 providers are being paid via bundled payments for treating certain conditions, based on guidelines under one of four compensation models.

“It seems like CMS has some real strong interest, and in the private sector, there are a large number of pilots. But in the grand scheme of things, there’s a pretty small amount of activity right now,” Hussey added.

The main factor complicating the transition is determining what data is needed to effectively compare healthcare outcomes and their costs under a variety of settings and timeframes. Some providers are resistant to the idea, afraid that privacy could be compromised, according to Hussey.

“They believe in the value of what they do as independent providers and would like to remain that way,” he said. The stakes in tracking the data are higher for providers, “but there’s still things that the insurers need to think about — you want to have some adjustment to both the payment rates and the things you’re tracking in terms of quality for different types of payments.”

Bundled payments seem attractive to insurers — they’d have a better idea of costs associated with particular illnesses. “You’re getting services at better costs and with better efficiency, and the costs are more predictable,” said Hussey. “They know, for that particular condition, how much they are going to be liable for, and there is an increased financial risk on the provider. That’s very attractive from the insurance company side.”

But the logistics of initializing the program continue to vex insurers. “They’re balancing the prospect of savings against what it takes to administer the program and determining if it is going to be effective when set against some of the other initiatives that they have underway,” Hussey added. “It boils down to the complexity of implementing and administering it.”

Payment itself is one of the more hotly debated aspects of bundling, as it can be made either ahead of services or after they are rendered. At the beginning of provider services, for example, an automatic or manual “trigger” would flag a patient’s account and determine whether their condition warrants bundling.

“At that point the provider and the insurer agree to the bundle payment, and a new claims processing pattern would kick in,” according to Hussey. “The tricks there are, first, getting the trigger set up right, and, second, making sure that the provider’s actually being paid via the bundle.”

Paying at the end of the treatment is slightly more complicated, he added. Initial payments can still be made on a fee for service basis, then, at some point, records are examined to see if a bundle had been provided, and a financial reconciliation takes place. But that creates problems from a cash-flow perspective.

“The provider then has to set aside some of the original money, so that if they owe some of it back, they can pay it,” Hussey said. “That’s a way they’re not used to operating, so they’re not certain how to make it work well.”

Bundles are for the moment most effective when they’re used to pay for a fairly discrete and well-defined medical event, such as a surgery or fighting a specific illness. “To set off the “trigger,” you need a diagnosis, so if you have a patient who comes in with a mystery ailment and no diagnosis, that should be covered by fee-for-service,” he said, adding, “There will always have to be the fee-for-service system remaining.”

Another key point of debate is what exactly should be included in a bundle. For example, if a patient were to contract a secondary infection following a surgery, would the costs resulting from the infection be included within a surgery’s bundled payment?

“That’s one of the key negotiating points that needs to be worked out,” Hussey said. “Right now the insurers have some financial risks from a complication and they’d like the provider to assume the risk for that, so they both try to make as many determinations as they can upfront, and then try to build in escape valves. You don’t want to have one of these complicated scenarios wherein patients put a provider out of business or create a huge loss.”

According to the study “Health Plan Readiness to Operationalize Value-Based Payment Models,” published in April by Availity, a healthcare consultancy, value-based health plans are indeed a priority strategy for health plans and they’re planning a significant amount of migration to automated information exchange strategies. But automation has been slow in coming. Ninety percent of health plans are using a hybrid automated/manual process for information exchange, and less than 50 percent have real-time automation capabilities. “Few health plans have achieved the desired level of automation viewed as critical to the success of value-based payments,” said the study.

Syncing payment with electronic medical records is a key goal, Hussey said.

“The ideal scenario is that providers are able to track their patients over the entire episode,” he added. “Sometimes people use the warrantee concept to explain this — the provider is giving a kind of warrantee that the quality will be perfect. So they have to be able to track their patients, using some of the real-time clinical data, and see when things are starting to go wrong.

“Right now that ability to share that data is pretty limited, so in most places in that delivery system, they’re not quite ready to deliver,” according to Hussey.

Though the clock is rapidly ticking on the eventual change, Hussey is nevertheless confident stakeholders will get in sync. “If they can work out the operational details, it can be very prevalent. It will never be that 100 percent of every healthcare service paid this way, but it can be a very large part of total care if it takes off.”