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Bundling By Decree

Philip Betbeze, for HealthLeaders Magazine, June 11, 2009
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Can an industry addicted to payment for procedure survive episodic care? Geisinger has.

While the trite phrase "treat 'em and street 'em" can't be heard much outside the banter within the C-suite at hospitals and health systems, it accurately and succinctly reflects incentives that drive all manner of activities in these organizations, which have operated for decades under a payment system that can be gamed quite easily. The phrase reflects a variety of truths about the current payment system:

  • Procedures are rewarded, keeping patients healthy is not.
  • Long lengths of stay are not rewarded, short stays are—even if the patient has to be rehospitalized.
  • Bed turnover equals revenue. When you empty a bed, you open up a space for someone else who needs something "done" to them.
  • A knee replacement provides X reimbursement. A coronary artery bypass graft provides Y. And so on.
  • Facilities that focus on well-reimbursed procedures are overbuilt—less well reimbursed ones are underbuilt.

That's not to suggest that hospitals are only bottom-line driven—many are far from it—but it's difficult to resist the intense appeal of high relative reimbursement. The problem for all consumers of healthcare services is that the current payment regime is wasteful because it reimburses for procedures, not outcomes. However, if the president gets what he wants in the federal budget this year, the preceding "truths" might be replaced by something that, in theory at least, provides cheaper patient care and better patient outcomes simultaneously.

Money does matter
"It's hard to look anyone in the eye and say the way we do things today is economical," says Russ Rudish, vice chairman and U.S. Health Care Providers sector leader at Deloitte & Touche LLP in New York.

It's also impossible to look someone in the eye and say the way healthcare operates today rewards quality of care, even though many hospitals have made great strides in that arena despite a general lack of fiscal incentive. Paying for services absent a quality component in the equation is endemic to the lack of efficiency with current payment systems—with notable exception of CMS's list of "never events" (complications that the agency has decided should not happen and should not be reimbursed).

But the new president hopes to change that. And a major first step would be accomplished if Congress goes along with his plan to pay healthcare providers by episodes of care, rather than by procedure—a mechanism known colloquially as "bundling." The budget deliberations central to President Obama's healthcare reform plan will take place this summer. Depending on how compliant Congress is to his ideals, the healthcare payment system would look quite a bit different in one year, and sweepingly different five years from now. Predictions range from the apocalyptic (small and weak hospitals will be forced out of business) to the merely transformational (a possible large-scale return to the integrated delivery system business model that many hospitals and health systems dismantled in the late '90s). A return to physician employment at a large number of hospitals in the past couple of years could be considered the first steps toward this eventuality.

But because the budget deliberations are in such a state of flux—bundling payments will be complex to administer even among the most rosy of predictions—so, too, are the potential outcomes. What unintended consequences might occur? Hospitals are already revisiting the owned physician practice idea after it largely failed a decade ago. Most no longer own health plans, but could they try to build or buy them again? Despite the uncertainty, it's possible to make educated guesses about how the healthcare business landscape will be transformed as the government tries to eliminate waste and error through the ultimate motivator: money.

Model already in place
Some hospitals and health systems are already on solid footing when and if bundled payments are part of payment reform. One notable example is Geisinger Health System, an integrated delivery system in Danville, PA, with 878 licensed beds across four facilities, and 212,000 health plan members. Geisinger has been making headlines for a couple of years now for its breakthrough program that essentially guarantees patients that if they follow a prescription and rehab regimen at Geisinger-owned or -affiliated facilities, the health system will cover any follow-up care related to the condition for 90 days, including readmission to the hospital, if necessary.

"If bundled payments or payment reform happens, our level of happiness would increase," says Ron Paulus, MD, clinical operations and chief innovation officer at Geisinger. "We feel frustrated that the way that the Medicare program is currently structured doesn't allow for a lot of innovation."

Paulus qualifies his comments by saying that funding payment reform will require some sort of universal or near-universal healthcare system, whether it's provided by government or takes the form of a national mandate on obtaining healthcare coverage—or a combination of the two. Geisinger President and CEO Glenn Steele Jr., MD, says it would be difficult to incorporate bundling into a broad-based healthcare reform initiative for a variety of reasons.

"Right now there are legal issues that would have to be changed in order to do so-called bundled payments and there would have to be very precise tools, not [yet] in existence . . . to figure out how to distribute components of payment," he says. "So it's pretty complex, and most of us have argued although it is the right kind of change, we probably ought to have a system where we can innovate rather than a defined set of new rules."

Steele argues that doing trials that experiment with a wide variety of payment and quality initiatives outside of "very special places like Geisinger" to a much more fragmented real-world situation would ensure a greater chance of reducing costs and increasing quality.

"You don't want to screw everything up all at once," he says.

Paulus wouldn't be surprised if bundling is ultimately sacrificed so that the administration can at least move forward with more aggressive quality initiatives than have been done in demonstration projects, for example. Bundling would be a "more complicated solution," Paulus says. "That's lower probability than cutting around the edges surrounding readmissions. That said, I would be surprised if bundling doesn't show up in an opt-in program or advanced demonstration."

Perhaps anticipating problems with legislative attempts at healthcare reform, as well as potential blowback from any one-size-fits-all healthcare reform solution, this spring CMS announced the start of a "comparative effectiveness" trial in 14 communities over the next three years that will work to coordinate care among disparate sectors of the healthcare continuum as a way to research optimum care delivery for a variety of illnesses. Another demonstration project on bundling payments specifically involving five hospitals and health systems was announced in January.

Of course, the results from this project won't be available until nearly the end of President Obama's term, and he's clearly interested in passing healthcare reform of more significance while he still has ample political capital to do so.

Getting from here to there
If it has anything going for it, the current fee-for-service payment system has relative simplicity. That statement might sound odd to a hospital CFO whose staff is burdened by excessive form-filling, i-dotting, and t-crossing, but as a healthcare service provider, you do a procedure for a patient, and you get a predictable sum.

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