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Understanding the Basics of Bundled Payments in Healthcare

How do bundled payments fit into the growing value-based reimbursement ecosystem?

- The shift to value-based care has driven public and private payers to redesign reimbursement models that stress accountability for care quality and healthcare costs. As the fee-for-service environment fades away, alternative payment models like bundled payments are helping to define the future of revenue cycle management.

Healthcare bundled payments reimburse providers for an entire episode of care in a single payment

Bundled payment arrangements are designed to pay multiple providers for coordinating the total amount of services required for a single, pre-defined episode of care. The model has been a popular method for embracing value-based care without fully immersing providers in downside financial risk contracts.

As with most new healthcare initiatives, many providers are still wondering how the bundled payment model works and how to earn financial incentives, such as shared savings, from the arrangement.  What are the basics that healthcare providers need to know?

What are bundled payments in healthcare?

Under a bundled payment model, providers and/or healthcare facilities are paid a single payment for all the services performed to treat a patient undergoing a specific episode of care. An “episode of care” is the care delivery process for a certain condition or care delivered within a defined period of time.

READ MORE: Industry Group Advises HHS to Expand Bundled Payment Models

For example, if a patient undergoes surgery, payers would traditionally reimburse the hospital, surgeon, and anesthesiologist separately for their part in the treatment. Through a bundled payment model, the payer would collectively reimburse the providers involved, using a set price for the episode of care, which is usually based on historical costs.

Providers who exceed the pre-arranged reimbursement for the episode bear the financial responsibility for overages.  This is intended to encourage standardized, cost-effective care decisions.

This means that there is some financial risk involved with bundled payment models, although much less than other alternative payment models, such as ACOs. If the cost of the episode is less than the bundled payment set price, then providers can keep the difference. However, if the cost is more, participating parties lose the difference.

For some participants, payers reimburse one of the entities involved in the care delivery process and that party apportions the payment among the providers. In other cases, payers reimburse each participating provider separately, but adjust the payment for each provider so as to not exceed the set price.

How can providers participate in bundled payment models?

READ MORE: Best Practices for Value-Based Purchasing Implementation

CMS taken the lead in developing several bundled payment models, such as the Medicare Bundled Payment for Care Improvement (BPCI) and Comprehensive Care for Joint Placement programs.

In 2013, CMS established the BPCI in an effort to promote better care coordination among providers and facilities. The program currently reimburses participants for 48 different types of episodes of care, but this is expected to increase under MACRA.

Providers can participate in four tracks of the BCPI. In the first track, hospitals are paid for an inpatient, acute care stay, while participants in the second and third models are reimbursed on a retrospective bundled payment system. The fourth track makes a single, prospective payment to hospitals.

With 1,522 participants currently in the program, CMS announced in April that those in the BCPI can extend their participation in tracks two through four for another two years.

Following the success of the BCPI, CMS also introduced the Comprehensive Care for Joint Replacement model.

READ MORE: Engaging Providers Key to Value-Based Reimbursement Adoption

The model aims to boost care coordination between hospitals, skilled nursing facilities, rehabilitation centers, and home health agencies during joint replacement surgeries.

“This model is about improving patient care,” said Patrick Conway, MD, CMS Principal Deputy Administrator and Chief Medical Officer. “Patients want high quality, coordinated care – not just for a day, but for an entire episode of care. Hospitals, physicians, and other providers who work together can be successful and improve care for patients in this model, and CMS will help providers succeed.”

What are the challenges associated with bundled payments?

One of the major challenges with bundled payments is managing costs for a patient’s treatment that may be out of the provider’s control, such as medication adherence or other patient behaviors that could lead to adverse events.

“There are situations where using a bundle may be inappropriate because the factors that are influencing differences in cost among patients are things that the provider doesn’t actually control,” explained Joshua Cohen, PhD, Research Associate Professor of Medicine at Tufts Medical Center in an article for the American Journal of Managed Care.

“For example, you might have a range of patients who have different comorbidities, and some of them are very high risk, and hence would be expensive and that’s not the fault of the provider. And sometimes they are things that can be controlled by the provider. And sometimes, you can’t even tell. That’s what really makes things complicated.”

Some providers also face technological challenges with the model because older health IT systems do not have comprehensive reporting or data collection functions. Using a robust data analytics program can be beneficial for analyzing quality and outcome improvements as well as cost efficiencies.

How do providers succeed in the bundled payments model?

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

Susuan Nedza, MD, told RevCycleIntelligence.com that providers need to “focus on early communication between the various groups that are going to make them successful.”

“That means the hospital, the post-acute care providers, and the physicians,” the former CMS Chief Medical Officer for Region V added. “They should develop a shared understanding of the goals as well as develop plans for how they’re going to manage cost across the episode. It’s really a supply chain exercise.”

Providers may also want to consider retooling patient risk stratification methods to account for patients who aren’t the sickest or the most expensive to treat. For this population, providers should 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.

“Hospitals have to understand the risk for those patients who are likely to have poor outcomes and they’re going to have to allocate resources more precisely to mitigate risk based on that patient’s needs-not based on the fact that they’re simply undergoing a hip replacement,” said Nedza.

Dig Deeper:

How to Scale Healthcare Bundled Payments throughout Hospitals

What Does the Rise of Bundled Payments Mean for Providers?

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