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Just What Are “Bundled Payments?”

By Kyle Marshall | August 21, 2014 | Healthy Lifestyle, Insurance Education

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Health care has more than its share of confusing terminology and jargon. One of our goals at BCBSNC is to break down the terms and concepts to give you the knowledge you need as a health care consumer.

In that spirit, we give you the latest term that’s catching on: Bundled payments. It’s essentially a flat rate for a given procedure — most often, hip or knee replacements. The hospital, physician group and the health insurer agree on a price for a “bundle” of services involving the procedure, and the insurer (or Medicare if the government is paying) pays that rate, and nothing more.

The one payment covers everything from pre-operative care to the procedure itself to follow-up and physical therapy.

If the procedure goes as smoothly as planned, there are benefits all around. The hospital has earned a profit, the insurer has already paid all that it agreed to pay, and the patient is well on the road to recovery. But if the patient develops a complication and has to go back into the hospital, the hospital absorbs that cost.

Health care experts point to bundled payments as one of the most promising ways to improve quality and trim costs.

One reason is that the arrangement builds incentives for everyone involved in your care — hospital, physician group, and other providers like physical therapy — to collaborate in achieving the best outcome at the most reasonable price. The incentives are often so strong that providers employ care navigators to help patients access and understand the various steps involved, including payment.

“Getting Respect”

The bundled-payment concept is expanding. For example, about 6,500 hospitals, physician practices and nursing homes are exploring a Medicare bundled payment program, the Centers for Medicare and Medicaid Services announced last month.

“Bundles are finally getting the respect they deserve,” says Elaine Daniels, senior strategic consultant at BCBSNC, who manages the company’s bundled payment arrangements.

BCBSNC has current agreements on bundles with three hospitals and physician groups: Duke University Health System, Triangle Orthopaedic Associates, and Ortho Carolina in Charlotte. That represents a significant expansion since the company first got into bundled payments in 2011 with CaroMonth Health in Gastonia. The one-year CaroMont pilot program was successful, resulting in an average cost savings of 8 percent to 10 percent per episode of care.

To date, all our bundled arrangements are for orthopedic procedures. Hip and knee replacements in particular are good candidates because it’s relatively easy to predict when the episode of care begins and ends.

Still Early in the Game

A recent study called into question the validity of bundled payments. Researchers at the RAND Corp., writing in the journal Health Affairs, reported that results were disappointing among hospitals and insurers in California.

It’s too early, however, to declare bundled payments either a slam-dunk or a bust. The RAND researchers said there are many lessons from the California study to be learned and applied as bundled payment arrangements continue to be put in place.

One area to address is ensuring that the incentives for providers and insurers line up. The RAND study noted that hospitals and doctors wanted to include only the lowest-risk patients in their bundles, while insurers were interested in seeing a broad and diverse population of patients included.

For BCBSNC, Daniels expects more hospitals and physician groups to discuss potential bundled payment arrangements with the company. And as we gather more data on existing bundles, we’ll have a better sense of how to design future arrangements.

“It may be an investment up front, but we’re seeing really good outcomes for our members,” she says. “In the old days, patients were out there on their own when the doctor said ‘I’ll see you in two weeks.’ In the meantime, they might have to go to the emergency room.

“With bundled payments, the doctors and hospitals want to make sure their patients are highly engaged in their own care.”