What Physicians Need to Know About Bundled Payments

April 2015

The Bundled Payments for Care Improvement (BPCI) initiative that has been launched by the Centers for Medicare and Medicaid Services (CMS) seeks to fold physician payments and a time period (30, 60, or 90 days) of post-discharge events and services into the prospectively defined model. In the BPCI model, physicians will no longer be disinterested by-standers, but will have their reimbursement and livelihood at-risk. It is likely that commercial payers will follow the CMS leadership in this fundamental way so that hospital care will be paid. Hospitals and physicians providing inpatient care will have to overcome decades of distrust and suspicion to work together. From our perspective, bundled payments are coming. Physicians that provide inpatient care will need to prepare for the cultural change of Bundled Payments, [1] and the following are important changes that clinicians must consider:

1) Physicians must take the leadership role in the monitoring of outcomes of care and the implementation for modification of processes of care to achieve improvement. If one accepts the simple formula:  Total Cost = (Cost of Routine Care) + (Probability of an Adverse outcome)*(Cost of the Adverse Outcome), then reductions in Adverse Outcomes will improve margins of care. While clinicians have given “lip-service” to improving hospital outcomes, bundled payments will make this a reality.

2) Economic Stewardship must become a physician responsibility in inpatient care. Standardization of practices and services can reduce the costs of variability. Careful assessment of comparable practices where less expensive methods have comparable results can generate substantial savings.

3) Physicians must take increasing responsibility for post-discharge management of the patient. The variability in the rates of readmissions for the same inpatient condition across the country indicates that readmissions and emergency department visits can be reduced because some facilities are already successful in doing it!

4) Physicians must receive a gain-share of savings for objectively-based performance in the management of outcomes and costs of inpatient care. Analytic methods must be established and financial incentives designed to reward improved cost-effective care; whether the clinician is an employee of the hospital, or part of an Accountable Care Organization, or is part of a virtual partnership agreement. [2]

At MPA Healthcare Solutions (www.consultmpa.com), we have designed the risk-adjusted models to permit objective measures of outcomes; we have defined excess costs of uncomplicated care, causes and solutions for post-discharge adverse events; and built simulations to define plausible methods for physician gain-share incentives.  If that doesn’t make any sense to you—don’t worry.  We’ll explain why it is important in our next note.  But here is a hint:  it is all about cost-effective care.

[1] Mehrotra A, Hussey P: Including physicians in bundled hospital care payments: time to revisit and old idea? JAMA April 09, 2015. doi:10.1001/jama.2015.3359.

[2] Fry DE, Pine M, Pine G:  Virtual Partnerships: aligning hospital and surgeon incentives.  Am J Surg 2010; 200:105-110.

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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