http://www.randcompare.org/print/policy-options/bundled-payment
Bundled Payment
Also known as "case rates" or "episode-based payment," a
single payment for all services related to a specific
treatment or condition (for example, coronary artery
bypass graft surgery or CABG), possibly spanning multiple
providers in multiple settings. Providers would assume
financial risk for the cost of services for a particular
treatment or condition as well as costs associated with
preventable complications.
What is it?
The most common method of paying providers for health
care services is a fee-for-service payment; that is, each
service provided is priced and paid for separately by either
a third party payer (e.g., an insurance company) or the
patient. For example, a visit to a doctor's office typically
includes a charge for the time spent with the doctor as well
as separate charges for collecting specimens (e.g., urine,
blood); another bill is generally received from the
laboratory that conducted the test and interpreted the
result. Fee-for-service payment systems are credited with
contributing to the lack of coordination of care across
providers and settings and the provision of services that
have little or no health benefits. An alternative payment
method is capitation, whereby an entity receives a lump
sum, usually prospectively, to provide all needed care for
an individual. Two key concerns with capitation, however,
are the incentive to provide fewer services than a patient
might need (under use) and the difficulty in adequately
adjusting the lump sum amount to account for varying
levels of illness among patients (risk adjustment).
Capitation is frequently rejected as a payment strategy by
providers, because of perceived problems with financial
risk, and by patients who have a choice of health plans,
because of concerns about under use.
Alternative payment approaches that are currently being
proposed seek a middle ground between fee for service
and capitation. Bundled payment systems (also known as
"case rates" or "episode-based payment") would make a
single payment for all services related to a treatment or
condition, possibly spanning multiple providers in multiple
settings. For example, a single payment could be made for
coronary artery bypass graft (CABG) surgery, including
presurgical services, facility and physician fees for the
inpatient surgical procedure, and follow-up care, including
monitoring and cardiac rehabilitation. Providers would
assume financial risk for the cost of services for a
particular treatment or condition as well as costs
associated with preventable complications, but not the
insurance risk (that is, the risk that a patient will acquire
that condition, as is the case under capitation). Since
providers would receive a set payment covering the
average cost of a bundle of services, there would be an
incentive to reduce the number of services that have no or
minimal benefit. Providers with higher-than-average costs
would be financially penalized and providers with lowerthan-average costs would profit. Another effect would be
to encourage coordination of care by holding multiple
providers in multiple settings jointly accountable, through
shared payment, for the total cost of care for a given
treatment or condition.
How would it work?
There are several bundled payment approaches currently
under discussion for Medicare. One proposal involves
bundling payment of services provided by physicians to
reduce overuse. Another would bundle payment for all
services, including drugs, for end-stage renal disease. The
third proposal, supported by the Medicare Payment
Advisory Committee, would bundle services related to
hospitalization for common diagnosis related groups.
Bundled payment approaches could also be implemented
by the Centers for Medicare & Medicaid Services, by
individual states via Medicaid and the State Children's
Health Insurance Program, by the U.S. Office of Personnel
Management in the Federal Employees Health Benefits
Program, and by private payers.
Has it been tried before?
The largest evaluation of bundled payment was the
Medicare Participating Heart Bypass Center
demonstration. This demonstration, conducted in the early
1990s, tested payment for an episode that included all
inpatient and physician services during hospitalization,
readmissions within 72 hours, and related physician
services during the 90 day global period, but not other preand postdischarge physician services (Liu, Subramanian,
Cromwell, 2001). Payment was made to the hospital, with
the hospital and physicians free to divide the payment as
they chose (Cromwell et al., 1998). The payment rate was
determined through a competitive bidding process.
Medicare is currently implementing the Acute Care
Episode demonstration, which will expand this model to
additional types of discharges.
Medicare also tested bundled payment in the outpatient
setting in the Medicare Cataract Alternative Payment
Demonstration. The episode included physician and
facility fees for cataract removal surgery, intraocular lens
costs, and selected pre- and postoperative tests. Provider
interest in the demonstration was low; only 3.7 percent of
eligible providers indicated a willingness to participate.
Episode payment rates were negotiated with three
participating providers. The payment rates were modestly
discounted (2-5 percent) from non-demonstration payment
rates for the same services (Abt Associates Inc., 1997).
Several private sector initiatives have also evaluated
whether bundled payment reduces health care costs for
knee and shoulder arthroscopic surgery (Johnson and
Becker, 1994) and CABG surgery (Edmonds and Hallman,
1995). More recently, Geisinger Health System (an
integrated delivery system) began accepting payment for
all care related to CABG surgery, including preoperative
evaluation and workup, inpatient facility and physician
services, routine postoperative care, and treatment of
complications (Lee, 2007). The price for the bundle of
services (which was not reported) was set at a level
calculated to cover average routine treatment costs plus
50 percent of the historical average costs for treating
complications. Geisinger also guarantees adherence to 40
process-of-care performance measures for CABG surgery
and used adherence to delivering the right care as a basis
for a portion of surgeons' payments (Casale et al., 2007).
Bundled payment based on "evidence informed case
rates" for acute and chronic illnesses (e.g., acute
myocardial infarction, hip replacement, congestive heart
failure, diabetes, asthma) is also being tested in a
demonstration project getting under way in four sites
around the United States through the Prometheus
Payment initiative (de Brantes and Camillus, 2007).