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How to Scale Healthcare Bundled Payments throughout Hospitals

One report from PwC encourages insurers and providers to work together in adopting healthcare bundled payments on a larger scale.

- Healthcare bundled payments are a key strategy across the industry aimed at boosting patient health outcomes, improving the quality of care, and bringing reimbursement toward a value-based payment model. While the Centers for Medicare & Medicaid Services (CMS), health insurers, and employers are jumping on the bandwagon of healthcare bundled payments, many providers have stalled their implementation of this reimbursement model at the pilot stage.

Bundled Payment Model

One report from PwC called Go big or go home: Accelerating the rollout of bundled healthcare encourages insurance companies and providers to work together in adopting healthcare bundled payments on a larger scale encompassing as much as 20 to 30 percent of their medical care services. The report outlines how payers and providers can move past the pilot stage of bundled reimbursement.

To gather more information about the report and healthcare bundled payments, spoke with one of the researchers, Director of Health at PwC Anne Wong. Why have healthcare providers stalled on expanding their bundled payment across multiple medical services?

Anne Wong: “I think it’s due to a few different factors. I think one is that they started in pilots, as would be the prudent thing to do because you don’t want to necessarily jump into something without testing it out first. I think the very nature of what a pilot is going to produce is part of the reason why they stalled. So a pilot is going to be very manual. The costs to operate that are going to be significantly higher than if you had an apt scale offering.”

“That in of itself is going to make any sort of results you see from any cost savings look not as good because you don’t have the sufficient automation and capabilities in place to make it work on the administrative cost side.”

“That’s one reason. To administer pilots is going to be very expensive. The second reason is that payers represent them and are often intermediaries between them. Providers want to see substantial cost savings. They don’t want to just see a 0.5 or 0.3 percent cost savings on their total overall medical spend. If you just do a pilot, even if you pick something that has a pretty high volume, you’re not going to get to that level of cost attainment.  So there’s been tepid interest from payers and from employers because they’re not seeing the level of cost savings that would be meaningful to them that they could then pass onto their employees through premium reductions.”

“I think those two, I would say, are the biggest reasons why, I think, bundles have stalled in the introduction. That’s the impetus for our article to say that providers need to take plunge and come up with a strategy for building a scalable operation that will enable them to have capabilities that are a lot cheaper to administer overall and they’ll actually have a substantial enough cost savings to move the needle for employers and make it an attractive offering.” Do you think most hospitals and providers are ready for adopting the bundled payment model? If not, what can they do to prepare?

Anne Wong: “I think the capabilities and the commitment are two things that most hospitals don’t necessarily have and so there is a lot they can do to prepare. On the capabilities side, there’s a lot that they can do even within their current contracts that would enable them to be more ready for bundles. A lot of hospitals are already on DRGs and so, if they can start becoming more efficient even within the confines of the hospital stays themselves, that would be in and of itself, preparing them more for adopting bundles.”

“If they can get their data under control and start understanding what’s really driving variation in cost - that would be another thing that would enable them to be more prepared for bundles.”

“The vast majority of hospital cost accounting systems are still based on an allocation method, which actually doesn’t show true cost. In other words, the existing cost accounting system don’t show that this patient used these specific drugs which cost this specific amount. It’s all based on allocation.”

“Then if you’re going to start holding physicians accountable to the costs that are occurring for their patient, that isn’t necessarily accurate. Getting ahold of their data and taking a hard look at their cost accounting system would be another thing to prepare.”

“Also, starting to think about care beyond the walls of their hospitals is vital. It is one thing to have a handle on cost and activity within the hospital, but a bundle is going to encompass a lot more than that. Starting to think about whether there are partners that you can establish with post-acute providers, what your physician alignment strategy is going to be. Is it going to be employment? Is it going to be clinical integration? You need to be able to share data with the physician who would not necessarily be practicing inside the hospital. I think there are a number of things that folks can be doing to get ready for it on the capabilities side.”

“On the commitment side, I think it is beyond just the contracting folks. I think this is really a senior level management decision that they’re going to commit to bundles and that this is going to be part of their strategy and not just going to be a contracting thing they do on the side to see if it works.”

“I would say that’s the other thing that hospitals aren’t quite ready to do, but I think it will be really important in order for them to take bundles to the next level.” How can CMS, commercial health payers, and hospital leaders incentivize the expansion of the bundled payment model across more healthcare services?

Anne Wong: “I think commercial payers have a really unique opportunity. There is no one yet who has really helped to define and be the almost market maker for bundles. Providers are the ones who own all the care delivery and they’re the ones who are probably best suited to figure out the care pathways and how care can be delivered, but there’s no one who’s really said we’re going to help these providers aggregate and package up all the bundles and make them into meaningful offerings for employers.”

“To me, that’s the role payers could play. They are more directing this and could be in a position of defining what can be included in a bundle and how you risk adjust. There’s a lot that needs to be defined.”

“I think if the commercial payers, because they really control the relationship with employers, could be doing a lot more to make that connection between what the providers can offer and what the employers really need in terms of cost savings.” What are the three biggest factors needed to scale bundles throughout medical facilities?

Anne Wong: “I think, one is that they have to make sure that they have demand. That was one of the things that we talked about in the report was ensuring that both the amount of bundles and the bundles that are chosen are relevant to the demand.”

“So you’re both affecting the demand and the type of commissions that you’re picking are things that are going to be relevant. Commercial payers or commercial employers don’t see a whole lot of cardiovascular cases because that affects mostly older people and commercial employers don’t have a lot of older people; most of them are retired.”

“But they see a lot more diabetes, or back pain, or pregnancy - those are often under-represented bundles on the provider side. So step one is leading demand.”

“The second area we talked about was making sure that your capabilities can be scalable across enough bundles so that your cost can be in line and also making sure you’re capitalizing on the capabilities of the things that you really do well.”

“And then the last thing is sometimes providers are so concerned with getting something completely 100 percent right, that they aren’t able to move beyond. We introduced a type of rapid prototyping where you, instead of trying to get everything 100 percent right, you try to get it right enough so that you can experiment with a lot more things and that would be a lot more conducive for getting to this at-scale kind of offering rather than trying to perfect your bundle.”

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