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Transitioning to Bundled Payments

June 24, 2014

Taking a more strategic approach to payer relationships may be the key to surviving new reimbursements models.

This article appears in the June 2014 issue of HealthLeaders magazine.

As the healthcare industry moves away from fee-for-service reimbursements toward a bundled payment model that holds providers financially accountable for an entire episode of care, hospitals and health systems need strategies for maintaining cash flow and economic viability during the transition.

Despite the urgent need to adapt to the new reimbursement environment, healthcare organizations do not appear to be rethinking their payer relationships in large numbers. In the HealthLeaders Media Industry Survey 2014: Forging Healthcare's New Financial Foundation, while 39% of respondents cite reimbursement as being among the top three areas where their organization must improve in order to reach their financial targets within the next three years, only 25% include forming strategic partnerships with payers in the top three.

Innovative approach to payers

Barnabas Health, a $2.5 billion system based in West Orange, New Jersey, is one of the organizations that is beginning to take a new tactic in its negotiations with payers—something the chief operating and financial officer, Jay Picerno, says is critical because of how quickly traditional payment structures are evolving.

"I would love to hang on to the fee-for-service model, but reimbursements are moving at a faster pace than we expected, and we are seeing a large decline in volume," Picerno says, noting that, statewide, New Jersey hospitals have experienced a 4%–6% drop in inpatient volume in recent years.

"It's like a wave on the beach, and this thing just came up very quickly. I don't know if that was the president's intent with healthcare reform, but he's definitely changed the fabric of reimbursements for hospitals across the country," he says.

As Picerno sees it, providers should view payers as partners in the transition of healthcare delivery instead of as adversaries in the battle over revenue.

"We approached our payers differently this year," he says. "Historically, we have always gone into negotiations and said we want a certain percentage of rate increase. This year, we were not looking for rate increases; we were looking for market improvement. We tried to flip this into a partnership discussion rather than a difficult negotiation," he says. "The mistake [providers] are making is trying to negotiate the old way with leveraging these deals. That is not going to work anymore. It's a partnership now. Payers have significant control over volume, and they have the ability to protect hospitals."

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