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Bundled Payments' Disruptive Effects Detailed

By Gregory A. Freeman  
   July 14, 2015

Mandatory bundled payments for hip and knee surgeries would shutter one in four skilled nursing facilities and trigger "demand destruction in areas such as diagnostic testing, hospital stays, and avoidable readmissions," says an expert on bundled payments.

Hospitals and health systems are likely to respond quickly and ruthlessly to the announcement last week that the Centers for Medicare & Medicaid Services will soon require bundling of reimbursement for hip and knee surgeries, with profits tied closely to costs and quality metrics. With outcomes dictating reimbursement levels, postop facilities that can't make the grade are likely to be cut loose.


Deirdre Baggot, PhD

The CMS move is not surprising says Mark Bogen, senior vice president of finance and CFO at South Nassau Communities Hospital in Oceanside, NY. Under the initial demonstration project set up through CMS, he notes, many providers selected DRGs 469 and 470 (major joint replacement or reattachment of lower extremity, with and without major complications or comorbidities) as a way to test moving toward a value-based payment system.

Through the demonstration project, CMS determined that more than half of the cost of providing care for joint replacements occurred post-surgery, Bogen notes, with the bulk of that cost occurring in either the acute inpatient rehabilitation unites or the sub-acute rehabilitation units of SNFs. 

"In typical CMS style, they have decided early into the demonstration project to move forward without waiting until all the results are in. This was similar to a number of years ago when CMS put together a demo project for the recovery audit contractors utilizing California, Florida, and NY and before the demo period ended, they announced the expansion nationally, as the early returns showed significant recoupment back to the Medicare Program."

The evidence to support bundled payments as a more cost-effective alternative to traditional fee-for-service is clear, says Deirdre Baggot, PhD, former lead for CMS's Acute Care Episode Demonstration (ACE) Bundled Payments Pilot, a CMS-appointed expert reviewer for the Bundled Payments for Care Improvement Initiative, and senior vice president with The Camden Group in Los Angeles, CA. She says the bundling is long overdue.

The effects of the CMS move may be seen soon, Baggott says.

Demand Destruction
"On the hospital side we can expect to see demand destruction in areas such as diagnostic testing, hospital stays, and avoidable readmissions, which is a good thing," she says. "Post-acute providers will see a significant hit to inpatient rehab and [skilled nursing facility] utilization as providers search for lower cost alternatives such as home health services."

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