Bundled Payments

Bundled Payments In Healthcare Organizations

As the United States shifts from fee-for-service to value-based payment for health care, it has become increasingly important for providers to learn how to succeed with alternative payment models (APMs). These new models tie payments to quality and efficiency rather than solely to the volume of services provided, with the rationale being that providers and organizations are in the best position to identify areas of improvement.

APMs vary in design. Some, such as accountable care organizations, target total population spending, while others focus on creating incentives for providers to limit spending during an episode of care.

One of these alternative methods is bundled payments. Also known as episode-based payment, episode-of-care payment, case rate, and others, this type of alternative model has seen a growth in use since 2020. In order to understand how this method affects healthcare, providers need to have a stronger understanding of what bundled payments mean for their practice.

Book Now

What Are Bundled Payments?

A bundled payment is a fixed-price agreement for a predefined episode of care. This often consists of a procedure and all related services for a medical condition. In a bundled payment model, the responsible party (usually the provider), assumes some financial risk for any costs that exceed the fixed price.

Because payment for an episode of care is not linked to the number and types of services rendered within the episode, a bundled payment incentivizes providers to coordinate care in order to improve efficiency and quality. Key care management strategies could include eliminating services that do not contribute to positive patient outcomes or increasing their efficiency. This includes choosing cost-effective care settings.

How Do Bundled Payments Work?

So far, most initiatives have focused on one condition, procedure, or treatment. One example is maternity care, which has seen prenatal, natal, and post-natal care bundled together under this model. Using this form of alternative payment comes with its benefits and challenges to providers, especially as more healthcare systems make the shift to value-based care.

In the traditional model, a patient undergoing surgery would result in the payer reimbursing the hospital, surgeon, and anesthesiologist separately for their part in the treatment. With the bundled payment model, this same patient’s episode of care would result in the payer collectively reimbursing the providers involved, using a set price for the episode of care, usually based on historical costs.

Providers who exceed the pre-arranged reimbursement for the episode must bear the financial responsibility for overages. This is intended to encourage standardized, cost-effective care decisions, but comes with a financial risk to healthcare organizations. The method of reimbursement also depends on how the bundled method is set up. In some cases, payers reimburse one of the entities involved in the care delivery process, such as the hospital, which then distributes the payment among the providers involved. In other cases, payers reimburse each provider separately, but adjust the payment for each provider to avoid exceeding the set price.

What Are The Benefits Of Bundled Payments?

When it comes to the potential benefits of bundled payments, data is mixed. This form of reimbursement can align incentives for providers and encourage them to work together to improve the quality and coordination of care. Hospitals, post-acute providers, physicians, and other practitioners can work to decrease the cost of care, while preventing patient readmissions.

In other words, bundled payments also incentivize doctors to improve the quality of care they provide. Under the traditional fee-for-service model, additional care translates to additional revenue, so physicians have little financial incentive to reduce the number of unnecessary tests. There is also no financial incentive to reduce the number of readmissions. Because physicians are now financially responsible for the total cost of care listed, they have a vested interest in preventing complications and readmissions.

The appeal of this payment method is that it is a middle ground in the spectrum of health care payment models. They mark a considerable shift from the traditional fee-for-service model, but they are not representative of global payments, or “capitation,” where a health care system is paid a lump-sum payment per attributed patient over a period. An advantage to this position is that, unlike global payments, which constrain the number of episodes that might be reimbursed, there are no such constraints for bundled options.Finally, by introducing a single cost, this type of payment also increases transparency and predictability of costs for patients and payers. Some patients and their payers may prefer this method, which helps hospitals or similar healthcare organizations expand their referral base. Other health care providers can also gain access to an expanded referral base and increase market share due to 

The Challenges of the Bundled Payment Model

Despite its promising future, bundled payments do offer some challenges to the provider that are out of their control, such as medication adherence or other patient behaviors that may lead to adverse events. Another example is in patients with comorbidities, where several factors affect how much each service costs, such as a high-risk procedure. This can reduce a providers’ autonomy in making decisions about patient care.

Bundled payments are intended to decrease spending via the reduction in the number of unnecessary physician services during a hospitalization, a more judicious use of healthcare resources, and a reduction in post-discharge costs through avoiding readmission or post-acute care services. As mentioned previously, doctors are liable for the cost of the patient’s care, but if the cost exceeds the bundled payment, this model assumes the practice will pay the difference not covered by the payment method.

Because doctors are now responsible for the total cost of care for a patient’s diagnosis, this is a financial risk. This could encourage physicians to become more selective about the patients they accept and may discourage them from providing any services not explicitly included in the bundle. For example, a doctor may feel the need to limit their practice to patients with a certain payor to ensure they are being fairly reimbursed.

Doctors may also feel pressured to make decisions that are more cost-effective for their practice than what is best for the patient. In order to minimize this possibility, a physician might have to negotiate lower rates for certain services, so they are not left to choose between cost and patient care.

In addition to this financial risk, healthcare organizations often see an increase in administrative burden for doctors and their administrators, as they are required to track and report on costs. Not only does this take away time that could be spent on patient care, but it can prove more of a challenge than the other risks due to older health IT systems. Many do not have the ability for comprehensive reporting or data collection. Healthcare staff would also have to consider the cost of upgrading a system or continuing with an ineffectual and outdated process until they are financially able to make the switch.

The Impact Of Bundled Payments

Overall, the impact of bundled payments on doctors is mixed. The ultimate impact bundled payments will have on physicians will depend on how they are designed and implemented.

One of the keys to success with this model is increasing provider communication. Providers must execute efficient care coordination strategies to ensure patients are treated optimally at every level to avoid expensive adverse health events.

This may also necessitate a retooling of patient risk stratification methods to account for patients who are not the sickest or most expensive to treat. Providers need to be able to predict what the patient’s needs are going to be throughout the episode of care, especially since their episode of care should fall into the set price of the bundled payment.For healthcare organizations looking to make the switch to this alternative payment method, Good Stewart Consulting can help. Our staff is highly knowledgeable, with years of experience in the health care sector. Transitioning to a new payment method takes away time better spent with patients. Instead of trying to balance both, trust the experts to handle it, so you can focus on your practice. Contact Good Stewart Consulting today to learn more about how we can help you

Book Now

Posted In - Healthcare Management

Skip to toolbar