The Beginning of Bundling

The roughly $9 billion that CMS spends on dialysis treatments each year is relatively insignificant when compared to the trillions the U.S. spends on healthcare. But dialysis reimbursements may soon become the key to healthcare’s future when CMS begins a new bundled payment system and quality incentive program for dialysis services.

Beginning next year, CMS will provide a single, bundled payment for outpatient dialysis treatment, supplies, related clinical laboratory tests, and certain related drugs (some oral drugs won’t be included until 2014). The year after next, CMS wants to begin a value-based purchasing system that would tie reimbursement to performance on three quality measures related to end-stage renal disease.

This isn’t just another pilot program. It is a first step in what will most likely be a long transition to a new payment system where bundled reimbursements and pay-for-performance are the norm.

“For the first time in any of our payment systems, the quality of care facilities furnish to patients will be reflected in their payment rates,” says CMS Administrator Donald Berwick, MD. CMS can reduce facility’s payment rates by up to 2% if it fails to meet performance benchmarks.

For a while now, there have essentially been two healthcare systems affecting how hospital leaders make decisions and think about the future. There is the current system--plagued by rising costs, misaligned incentives, and reimbursement pressures—which affects day-to-day operations.

But hospital leaders have also been mindful of a future, hypothetical system. It features bundled payments and rewards quality instead of volume; it encourages coordination and cooperation between providers. It doesn’t yet exist, but it might as well. Its seeming inevitability already influences strategic planning.

Not knowing when or if the transition will occur, though, has made it difficult for hospital leaders to simultaneously plan for today and prepare for tomorrow. Many CEOs and CFOs know that tighter integration and smoother care transitions will be essential to thriving in the new system, and that will require new infrastructure and changes in organizational priorities, in some cases. But it is difficult to justify spending much of today’s strapped budgets to prepare for a new system with a question mark for an implementation date.

The bundled program for dialysis at least gives both providers and CMS a chance to get their feet wet before jumping in. Everyone still has a lot to learn, and bundled payments won’t necessarily be any simpler than today’s complicated system.

Even though the new rule sets a base payment of $229.63 for a dialysis treatment, there can be adjustments for case mix, new patients, pediatric patients, co-morbidities, low-volume facilities, geographic wage index, training for self-dialysis, and high-cost outlier cases. If each bundled service has a similar number of adjustments and exceptions, the unintended consequences could be problematic.

Although most of the end-stage renal dialysis facilities affected are freestanding, about 600 of them are hospital-based. Those hospitals get their own mini pilot programs to test what it takes to succeed with bundled payments and value-based purchasing. What they learn will be valuable as the system expands to other diseases and treatments.

CMS hasn’t really indicated when that will be. Many questions remain about how bundled payments and true pay-for-performance will work and when they will be implemented. It will be a long transition from the fee-for-service system of today to the hypothetical value-based system of tomorrow.

But it looks like CMS is ready to begin.