Bundled Payments, Bungled Care?

Bundled Payments, Bungled Care?

This piece was originally published in the November 2016 issue of electroindustry.

Madeleine Smith, PhD, Director, Government Affairs & Policy, General Electric

Stethoscope on US dollars isolated on white background

As financial pressures on the healthcare system rise, the Center for Medicare and Medicaid Services (CMS) and private payers are experimenting with new ways to incentivize the efficient production of healthcare to reduce costs.

One popular payment model is the “episode bundle,”[1] where a group of providers receives a single fixed fee for all care for a patient with a defined clinical condition over a specified period of time. Often, the episode begins with an admission for inpatient care and ends upon discharge or after a fixed period of post-discharge care.

Facilities and clinicians are bundled providers who have common incentives to control the volume of services and costs. This is a dramatic shift from traditional fee-for-service (FFS) payment models, where a single provider gets paid for each service.

Bundles are hardly a new concept. CMS has been paying hospitals for inpatient care using bundles since the 1980s. The fixed amount depends on the patient’s diagnosis, with higher payments for more complex diagnoses (e.g. heart transplant) and lower payments for less complex diagnoses (e.g. headache). If the hospital provides care for less than the fixed amount, it keeps the difference. If the cost exceeds the amount, the hospital takes a loss.

Under episode bundles, care provided in the doctor’s office or other outpatient settings is still generally paid under FFS, but CMS is building bigger and longer episode bundles that capture more and more care delivered by non-hospital providers.

Starting with the Medicare Acute Care Episode (ACE) Demonstration, CMS began to explore bundling payments to hospitals and physicians that are triggered by hospital admission for joint replacements and certain cardiac procedures and end at discharge. CMS recently announced a new series of episode bundles that provide a single payment to bundled providers for an inpatient stay and all care within 90 days after discharge.

While policymakers hope these initiatives will promote better coordination among care providers to reduce costs, they recognize the incentives these create to skimp on care or to avoid sicker patients. One way to guard against such practices is to monitor the quality of care.

Although imaging is critical to the screening, diagnosis, staging, surveillance, and therapy monitoring of many medical conditions, stinting is a concern. If the payment is too small, a provider may not be able to cover the cost of follow-up imaging. Providers may also be induced to refer for cheaper tests—perhaps, an x-ray when magnetic resonance imaging (MRI) is more appropriate. A patient may not receive the right scan at the right time, with potential negative effects on health.

MITA monitors the launch of these bundled episodes and offers feedback to CMS on the critical role imaging plays in cardiac and orthopedic care. The value of imaging must be appropriately recognized by payers and healthcare providers to ensure that patients get the care they need.

Imaging is often seen as a cost driver, and we believe this perception needs to shift along with payment models. The upfront cost of a scan is insignificant compared to the cost of delayed diagnosis, misdiagnosis, or a diagnosis missed altogether. In a bundled payment, an early and accurate diagnosis may mean earlier care and fewer procedures, thereby reducing costs and increasing value at the back end.

As with any experiment, we believe that there will be much trial and error over the next few years as more initiatives are launched. It is our hope that this experiment will not only lower costs and improve care but also help payers and providers recognize the true value of medical imaging.


[1] Robert A. Berenson, Suzanne F. Delbanco, Roslyn Murray, Divvy K. Upadhyay, “Bundled Episode Payments: Payment Methods and Benefit Designs: How They Work and How They Work Together to Improve Health Care,” April 2016

RRead the November 2016 issue of electroindustry.

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