In a recent course of the University of Pennsylvania’s Master of Health Care Innovation, Ezekiel J. Emanuel, MD, PhD interviewed fellow Penn professor Amol S. Navathe, MD, PhD, an expert on alternative payment models.
Below are some highlights from their discussion around bundled payments and ACOs. Excerpts have been edited for clarity.
EE: How do you see the implementation of alternative payment models happening over time?
AN: I imagine in the next five to seven years, we're going to see some shifting. Whether we see mandatory bundled payment again, is an open question. I would guess maybe not. We know that moving toward alternative payment models is definitely an important direction.
EE: One of the things we know from ACOs is that the physician-led groups seem to have saved more money. Do you think physician-led groups might save more, say, in an ACO context? Would it make sense in the bundled payment context that a better initiative by doctors is going to work?
AN: ACOs are about population health in a global payment mechanism. If you start to deconstruct where the savings come from in ACOs, it’s largely from acute hospital utilization. It isn't that much of a leap to think that physician-led ACOs are going to be better at reducing hospital utilization than a hospital-led ACO, when a hospital is dependent on hospitalizations for revenue.
If you take bundled payments, it's a little bit different. We’re looking largely at a post-hospitalization set of services, or what we call post-acute. And we do see savings there—somewhere between 4% and 21% on an episode. So that's real money.
EE: How do you see the uptake of bundles or ACOs in the private sectors or commercial payers?
AN: That's one of the most exciting things. I think they've seen the writing on the wall in terms of how bundled payments can generate savings. Horizon Blue Cross Blue Shield put forth chronic care bundles, basically for congestive heart failure, for diabetes. From what we understand, they've been very successful at it. Though, they haven't really published any results.
EE: When you deconstructed the bundled payment experience, so far—and we all have to admit it’s limited and the best data comes from hips and knees—how do we understand those savings?
AN: One important piece is this alignment between physicians and hospitals that can generate savings, even within or under the DRG payment itself. That’s pure profit to hospitals. That's a great reason to join the bundle.
Previously, a patient walks in the door and thinks, "After this I'm going to be post-op, I'm going to have a new knee, I'm going to take physical therapy. Maybe I should go to an inpatient rehabilitation facility." It's very patient preference-oriented. Surgeons or hospitals rarely told their patients no. They didn't say, "Well, you're a relatively healthy 58-year-old, you should be able to go home and get physical therapy in your own home."
So the biggest mechanism there we saw was actually a decrease in Inpatient Rehabilitation Facility use and then skilled nursing facilities, which are just institutional post-acute care. In fact, we've seen some increases in home health services that make sense as you shift patients from those facilities to their homes.
EE: And what are the ranges of savings?
AN: This is a place where the numbers on the commercial side and the Medicare side are going to differ. On Medicare, take an uncomplicated joint replacement, which costs around $20,000-$25,000. If you look at the Medicare evaluation, we’re seeing savings of about $1,200. We've seen it as high as $5,000. So anywhere from 5% to 20%. If you take that there are 450,000 joint replacements that Medicare pays for per year, we're talking about billions of dollars of savings.
On the commercial side, we don't have a lot of data yet. I think there are two things to know. One, post-acute care, is going to be a smaller proportion of the episode, because patients on average tend to be healthier. Two, rates tend to be a lot higher. The average seems to be somewhere around $55,000, or $60,000. So a 10% decrease there suddenly is worth the same dollar amount it is in Medicare if you get 20%.
Ezekiel J. Emanuel, MD, PhD and Amol S. Navathe, MD, PhD are faculty members in the Department of Medical Ethics and Health Policy at the University of Pennsylvania. Click here to learn more about them and the online Master of Health Care Innovation.