Providers partner with payers for bundled payments

Despite the elimination of mandatory bundled payments by the Centers for Medicare and Medicaid (CMS), commercial insurers are investing in this model based upon the positive results they’ve seen from the CMS demonstration models and their own trial experiences.

Bundled payment models shift financial and clinical accountability to a single provider-led organization that takes responsibility for the cost and quality of care delivered for the agreed upon episode. The organization receiving the bundled payment earns a higher margin if the resource consumption for the patient is more efficient and better quality outcomes are achieved. At the same time, this provider must carry the financial risk of over utilization, re-admissions and complications of care. This transference of risk provides a significant benefit to the plan sponsor by eliminating variance in claims cost for the episodes of care being bundled. There are currently upwards of one hundred bundles currently being delivered in markets nationally.

Challenge Leads to Opportunity
Bundled pricing induces providers to shift their fee-for-service focus on revenue generation to more tightly coordinated, team-based care focused on optimal efficiency with the best possible outcomes. This requires them to gather more data and develop more refined analytics focused on risk adjusted quality of care and clinically adjusted cost data from across the care continuum to develop appropriate care pathways for episodes.

This can lead to substantial benefits for providers. One health system in Texas realized almost $6.1 million in healthcare cost savings after adopting a joint replacement surgery bundled payment. Another network delivered over $10 million in savings in 2017 with more anticipated savings in 2018.

Providers have also been seeing an increase in care quality improvements. A recent study of the Medicare Comprehensive Care for Joint Replacement program revealed that participating providers decreased expensive hospital admissions by 1.4 percent and emergency department visits by nearly one percent. Care episodes with prolonged lengths of stay also dropped by 67 percent.

Meeting payer demands
With growing interest from plan sponsors, commercial payers are developing partnerships with astute hospital leaders to overcome key challenges and move towards value-based care provision:

Achieving economies of scale
Scaling up includes increasing the percentage of viable patients using a specific bundle, adding additional bundles and extending the bundles for up to 90 days after the procedure. As a result, providers can mitigate the risk within a specific group of procedures and balance their risk. Additionally, as plan sponsors underwrite the benefit of bundles, they will be looking for more providers willing to deliver care locally. Currently some organizations include a travel benefit as an incentive for members to select a provider that is participating in a bundled arrangement. The cost of travel with accommodations, and possibly a companion, will need to be considered in underwriting the complete cost of the benefit. Even with the travel benefit, current bundled contracts can still save over 50 percent compared to fee-for-service relationships within a broad access PPO.
Leveraging post-acute care partnerships to control costs
With bundled payments, it’s important to identify high-value partners. According to one study, top-performing skilled nursing facilities averaged a length of stay for Medicare beneficiaries of fewer than 24 days, while low-performing facilities had an average of over 34 days.

Cultivating post-acute care partnerships helps to control costs and unexpected spending in home health, skilled nursing and other post-acute settings. For example, psycho-social determinants of care, medication adherence and avoidable care complications are key factors that can prevent providers from thriving in bundled arrangements.

When contracting with payers, providers should select patients carefully to avoid care episodes that frequently involve patients with co-morbidities or complex surgical procedures because these groups have more variability around the risk of adverse events and resource utilization. In fact, bundled payments are more appropriate for procedures or conditions in which clear evidence-based care pathways have already been established.

Providers, however, may not have access to reliable post-acute care data. The information has historically been limited, unavailable or highly unreliable. Payers will need to collaborate with providers by sharing data that drives opportunities for quality improvement across the continuum.

Managing Healthcare Costs

Both payers and providers must embrace more refined analysis of quality and cost performance. The use of patient level risk adjustment for mortality, complications and unanticipated readmissions, along with the Agency for Healthcare Research patient safety indicators is vital to demonstrate to stakeholders that optimal quality outcomes are being achieved at a lower cost to the plan sponsor. These indicators must be risk adjusted for accurate analysis of outcomes to validate performance, remediate poor outcomes, credential providers and market the program reliably. The providers must adopt statistical process control techniques to discern variation in quality and cost outcomes to prevent Type I and Type II errors in assessment.

Optimizing the Opportunity
Recent CMS delays to bundled payment implementation may have caused some providers to hold back on participating in this alternative payment model. But experts agree that the episode-based reimbursement structure is here to stay and providers should prepare their organizations for more robust participation.

As the value-based healthcare economy rapidly transforms how healthcare is organized, delivered and measured, providers are well advised to seek and optimize innovative opportunities across the value-based healthcare continuum. Understanding the common challenges providers face with healthcare bundled payments will position them to realize healthcare cost savings and generate a profit from the model.

Taking it one step further, they should engage with organizations who can deliver provider profiling solutions to more effectively monitor and measure clinical and financial performance with greater precision.


If executed properly, bundled payment models provide the platform for providers and payers to work together in delivering quality outcomes at a reduced cost but more importantly providing patients with higher-quality and safer care.

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