The Rationale Behind the Current Bundle Rollout

August 2016

When asked “why do you rob banks?” Willie Sutton allegedly responded by saying “because that’s where the money is.” The Centers for Medicare and Medicaid Services (CMS) might give a similar reply when asked “What is the rationale behind the current bundle rollout?” In their case, it’s because that’s where the money (and the data) is.

It should not be surprising that the increasing number of mandatory bundled payment programs being launched by the CMS include those MS-DRGs that have the greatest economic burden. The Comprehensive Care for Joint Replacement (CJR) program started April 1, 2016 in 67 designated areas of the country. A second bundled initiative is being planned for Acute Myocardial Infarction (AMI), a costly condition with and without costly associated surgical and interventional procedures, with an expected launch date of July 1, 2017. This AMI bundle will sweep percutaneous coronary interventions and coronary artery bypass grafting into a very large and intricate payment strategy for providers.

Based upon the Bundled Payment for Care Initiative (BPCI), multiple other bundles targeting high volume and high cost inpatient surgical and medical conditions are in the queue. It is likely that outpatient procedures for the same conditions will also be folded into this larger program of bundled payments. It’s quite possible that the CMS rollout of bundles will mirror 1983, when Medicare introduced prospective payment for hospitals with Diagnosis-Related Groups (DRGs). Within a few years, we may see the entirety of surgical and acute medical care paid with bundles. The question is, how will providers respond?

The C-Suite Response

How will hospitals respond to the evolving bundled payment initiative from Medicare, and the similar initiatives likely to follow by private insurers? Many will feel that the Healthcare Apocalypse is at hand and that insolvency for hospitals will be the end-product. These were the same sentiments that were expressed with the implementation of DRGs 30+ years ago. However, insightful hospital executives will note that bundled payments represent an opportunity to incorporate quality and efficiency programs into a single effort.

Bundles establish a budget for each episode of care, including any associated adverse events. That necessarily creates a connection between the quality of care and the cost of care. Providing too much inefficient or ineffective care will drive up costs beyond the budget and create a loss for the hospital. The opposite is also true. Efficient and effective care will keep costs within the budget and produce a gain—for both the hospital and the patient. Bundled payments should not be viewed as a threat, but an opportunity.

Physician Response

Physicians wanted to see the end of the Sustainable Growth Rate formula used to set reimbursement for their services, and most were pleased when it was repealed. But now that the Medicare Access and CHIP Reauthorization Act (MACRA) and Merit-Based Incentive Payment System (MIPS) have appeared, despair is once again descending upon clinicians. It is viewed as a bureaucratic morass that defies understanding. And to top all of it off, we now have alternative payment models like ACOs and bundled payments as the only alternatives. Many will long for the “good old days” of fee-for-service payment, where responsibility for cost was not part of the equation.

Despair is not in order. The silver lining of alternative payment models is that they move beyond reporting an increasingly burdensome and complex set of process-based metrics. Basing these models on appropriate metrics permits payers and providers to focus on measuring and rewarding good outcomes of care for the ultimate benefit of patients. Further, properly designed alternative payment models free physicians from onerous administrative restrictions and burdens so that they have the flexibility to deliver appropriate and necessary care to their patients. The hallmark of successful and sustainable bundled payments is a set of incentives that reward physicians based upon their ability to reduce the cost of care while maintaining or improving clinical quality.

So embrace bundled payment models that focus on outcomes driven, high-quality, and cost-effective care. Why? Because a) continued expansion of bundled payments is inevitable, b) experience working in a bundled environment will be invaluable as this expansion occurs, and c) now (and even more in the future) that’s where the opportunity, and ultimately the money, is.

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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