Think Bundled Payment is Inevitable? Think Again

Getting bundles of these is easy?

This just published Health Affairs article finds some flies in the bundled payment ointment.  The summary below speaks for itself.

In 2010, California's Integrated Healthcare Association and RAND piloted a bundled payment with gain-sharing arrangement for a set of orthopedic surgery procedures. Six commercial health insurance plans, eight hospitals and one independent practice association (IPA) agreed to participate in a uniform payment program. There were technical consultants, a steering committee, and physician committees that presided over deciding which services would be included in each of the orthopedic bundles.

Problems abounded. There were delays, fewer than anticipated surgeries, doubts about whether the bundles would result in meaningful change, concerns about administrative burdens and problems fitting the bundles into some of the existing capitated contracts.

It all boiled down to:

1) Details: it turns out that an episode of care is complex and intertwined, making it difficult to establish consensus over what should - and should not - be covered in a bundle payment.  Insurers naturally favored inclusion of as much as possible while providers favored preserving separate fees for as many related services as possible.

2) Distrust: each of the participants had different motivations. Insurers wanted the overall volume of orthopedic procedures to drop. Hospitals wanted their implementation costs covered. Insurers wanted to price the bundle using a roll-up of fee-for-service minus a discount, while the hospitals demanded a higher aggregate payment plus higher volumes of referrals from the insurers. Insurers wanted to transfer risk, while the hospitals wanted a stop-less provision.

3) Information technology: the legacy systems of both the hospitals and insurers were unable to process the bundles. Attempts to switch to a manual system only increased inefficiencies.

4) Whither the physicians: Not only was it complex figuring out how to compensate doctors for their services within a bundle, California has a prohibition against the "corporate practice of medicine" by hospitals.  Other regulatory concerns over managed care contracts made things worse.

5) Critical mass: the absolute volume of orthopedic procedures was less than anticipated.  This diminished the financial as well as educational return on investment.

The introduction to the article sums up the Population Health Blog's takeway:

"Evidence is lacking on the effectiveness of bundled payment in terms of improving the quality of care, reducing its costs or both.  Existing evidence about bundled payment programs mostly comes from bundled payment designed with more limited scope that have little generalizability to current programs."

This real world attempt shows that "bundled payments" are not a health reform slam-dunk.