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.
These arrangements are an exercise in taking on risk. Why do it?
In the short-run, it offers the potential to increase market share, particularly when paired with benefit plan changes that provide incentives ("steerage") for patients to choose participating facilities. More importantly, however, these arrangements create a laboratory to experiment with risk in a relatively controlled environment and an opportunity to align incentives to improve the quality of care, reduce cost and improve patient experience. This is achieved through the collaboration that aligned incentives can foster among hospitals and physicians.
While it's important to carefully design the financial elements of these arrangements, the financials are only half of the equation. To be successful, organizations need to simultaneously embark on a process to redesign and optimize care—engaging all providers who touch a patient across an episode of care.
For an elective procedure such as a total knee replacement, this might include better patient preparation for surgery and more tightly managed post-acute care. In preparation for these types of models, some organizations are exploring the concept of prehabilitation—programs that both mentally and physically prepare patients for their procedure.
The short-term play may be to increase or lock-in market share—but the alignment of incentives in bundled payment also provides an opportunity to encourage and reward providers for working collaboratively to put the patient first and deliver the highest-quality, most cost-effective care.