How Bundled Payments—and Hospitals—Will Change if They Are Going to Succeed

September 2016

CMS’s Comprehensive Care for Joint Replacement (CJR) bundle initiative is a clear step forward. Possibly, the greatest impact of the current CJR program implementation is that accountable entities are gaining a better understanding of post-acute care costs and post-acute care adverse outcomes. This expanded perspective will enable them to adopt targeted post-acute care strategies and partnerships that result in efficient and effective care. The focus on episode cost will also result in downward pressure on the use of new technology such as surgical robots, expensive joint implants, and pharmaceuticals. After all, if these items can’t be linked to better outcomes or to cost reduction during the episode of care, providers have an incentive to choose less expensive alternatives. For these reasons and others, we believe that if properly implemented, bundled payments are the future of payment models. But we are not there today. There are still some changes that need to be made for bundles to be successful. Here are a couple to consider.

Bundles are Siloed

Currently, the approaches of the Centers for Medicaid and Medicare Services (CMS) and commercial payers are siloed, with virtually no overlap between procedures (e.g. 90 day episodes of total joint replacement and CABG surgery). The silos are needed because they simplify program design and roll-out by avoiding issues of double attribution of services. However, any payment model that is successful in the future must be able to cover the vast majority of healthcare—which means covering patients with overlapping episodes of care. Put another way, siloed development of bundles carries the risk that systems will be created specific to individual bundles but will break down in the face of multiple concurrent bundles. That is the kind of situation that could occur if a patient that comes in for one procedure has to also have a separate procedure while they are there. This design concern has not been adequately addressed in current initiatives.

Incentives Are Not Aligned

This shift in payment to bundled episodes is driving a reassessment of care processes for healthcare providers. While seeking improved efficiency and effectiveness is nothing new for these providers, success at the system level has been hindered by misaligned incentives. Differences in the way that physicians and hospitals are paid, for instance, creates an environment where optimizing efficiency and effectiveness may have contradictory meanings to the two entities. Properly structured bundled payment programs that allow sharing arrangements align incentives so that when one party “wins,” all parties “win.” When payments are properly designed, managing episodes of care under alternative payment models will ultimately lead to a more streamlined healthcare experience. That’s why properly designed bundled payments, and the hospitals that intelligently implement them, will succeed. To learn about how we solve these problems, take a look at our website:

Donald Fry

Donald E. Fry, M.D. is Executive Vice President for Clinical Outcomes Management at MPA Healthcare Solutions, Adjunct Professor of Surgery at Northwestern University, and Professor Emeritus of Surgery at the University of New Mexico School of Medicine. At MPA Healthcare Solutions, Dr. Fry provides clinical leadership in analyzing and evaluating clinical performance, guiding quality improvement, and creating incentives for coordinated, cost-effective care.

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