Building Bundling Business

An intermediate rate design between fee-for-service pricing of medical services and capitated, or global, payments is the concept of bundled payments.  Under this scheme, the health care organization gets a fixed fee for a given medical condition. A recent article from Medscape Business of Medicine by Kenneth J. Terry addresses some of this issues arising from this kind of payment scheme.  It notes:

There are 3 main types of bundled payment structures:

• Bundling of hospital and physician payments for inpatient procedures;
• Bundling of inpatient and post-acute care for a time-limited episode; and
• Bundling of chronic disease care for a specific condition, usually for a year.

In all cases, if the provider organization can deliver the care for less than the bundled payment, the surplus is available to be shared in some manner between the facilities involved and the doctors.  If it can not deliver the care for the budgeted amount, the loss must then be allocated.

I am going to skip the clinical protocols and other aspects of actual care delivery and focus instead a big business issue regarding this kind of scheme.  I have mentioned it before, with regard to global payments, but it also applies to bundled payments. 

Underneath the global budget, there is still a fee-for-service arrangement establishing the transfer prices among the providers in a network. That GI specialist will still get paid for each colonoscopy. The big thing to work out in this system is the allocation of any surplus or deficit in the annual budget among the various specialists.

This topic is addressed directly in the financial section of the article, "Dividing the Pie."  Here it is:

If healthcare organizations can provide care at a cost that's less than the bundled payments, the resultant savings may be divided between hospitals and physicians in a variety of ways. The most common approach is to pay doctors 100% of their Medicare or private insurance fees and add a gain-sharing bonus if they meet quality and efficiency targets or prevent complications.

Eventually, hospitals may ask physicians to share in downside risk as well. But right now, they're reluctant to do that. They fear that community doctors might not participate in such a program because of their bad experiences with HMO capitation.

Simon Prince, MD, a nephrologist in Manhasset, New York . . . dislikes the idea of hospitals being in charge. Hospitals and physicians both support quality improvement, evidence-based-medicine protocols. and care coordination, he says, but the real problem with bundling is that the hospitals get to decide how the payments will be divided. "At the end of the day, they hold the cards. They have all the leverage in the relationship."

Robert Berenson, MD, a senior fellow at the Urban Institute, concurs with that view and says he wouldn't be surprised if hospitals took the bulk of savings because Medicare's hospital payments represent about 85% of the cost for an inpatient episode of care. But [Michael Zucker, Senior Vice President and Chief Development Officer at San Antonio's Baptist Health System] disagrees, noting that bundling would be impossible without physician cooperation.

[At] Baptist Health. . . the physicians and the hospital had equal voices in the organization, and they decided to split the bundling proceeds 50/50 . . . . Baptist saved $2.2 million in the first year of the pilot, mainly due to lower costs for implants, and 78% of the physicians received bonuses.