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Understanding Bundled Payments

Wade Johannessen, PhD, Director, Sg2, for HealthLeaders Media, July 22, 2011

Although 2011 may go down in the history books as the year of the accountable care organization, there's also been a tremendous amount of payment innovation on a different level—aligning incentives and optimizing the delivery of "episodes of care." Bundled (sometimes referred to as episode-based) payment structures are a means to that end.

A bundled payment can be thought of as a budget. For a given episode of care, a group of "at-risk" providers agrees to work together to ensure that care is coordinated and that the total cost of an episode is within the budget.

Under this model, the costs of any unplanned readmissions or complications are the responsibility of the providers, creating an economic incentive to prevent those costly events. To ensure that these financial incentives don't adversely affect other aspects of quality, it is also critical to measure and monitor patient experience and outcomes.

CaroMont Health, a community hospital in Gastonia, NC, and SSM DePaul Health Center in Bridgeton, MO, made headlines earlier this year when it signed agreements with payers in which the hospital and affiliated physicians agreed to take on clinical and financial responsibility for the episode of care surrounding a total knee replacement. And in California, under the direction of the Integrated Healthcare Association in Oakland, a regional approach to episodes of care is underway involving multiple hospitals, physician groups and payers.

Although the approaches to bundling vary, a common theme is that the at-risk providers (ie, hospital and physicians) are responsible for the quality and cost of services that they do not directly provide: services such as outpatient drugs, physical therapy and other post-acute services.

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