Skip to main content

Get Comfortable With Bundles

News  |  By Philip Betbeze  
   March 22, 2016

As episode-of-care payments begin to go mainstream, leaders are learning how to avoid critical and costly business mistakes.

This article first appeared in the March 2016 issue of HealthLeaders magazine.

The Centers for Medicare & Medicaid Services has mandated that hospitals in 67 markets participate in bundled payments for hip and knee replacements. It's part of an acceleration in the transition to risk-based payment arrangements, and about 800 hospitals will be subject to the new reimbursement regime.

This is the first time CMS is requiring mandatory participation in any bundling; before, all such initiatives have been voluntary for hospitals. It shows a commitment from Medicare—some employers and commercial payers are already beyond the experimental stage—to integrate care and put providers at financial risk for outcomes.

There are variations in the level of downside risk based on the year of the program and the type of provider organization, but maximum stop-loss limits are set at 5% in year 2, 10% in year 3, and 20% in years 4 and 5 for specified procedures.

Align physicians, incent performance
Commercial payers and even employers have directly contracted with healthcare organizations in irregular fashion for a few years now—more on that later—but because CMS is the biggest payer for most hospitals and is mandating participation, its new requirement has many hospital leaders worried. Will they be able to perform?

Baptist Health System, a San Antonio, Texas-based five-hospital organization that is part of Dallas-based Tenet Healthcare, has plenty of experience with bundling; Baptist Health was one of the first participants in CMS' acute care episode demonstration project, aimed at testing the feasibility of bundled payments for cardio and orthopedic procedures.

Though not all organizations that participated experienced success, Gary Whittington, Baptist Health's chief financial officer, says the benefits that have accrued over time go much further than the financials since the organization began the Medicare Acute Care Episode (ACE) pilot in 2009.

Whittington says the pilot evolved into a market differentiator for the health system. But more important, it became a powerful physician alignment tool for an organization that didn't employ any orthopedic surgeons, yet had a large orthopedic service line. He says the leadership team was betting back in 2009 that this kind of payment regime was going to grow dynamically over time.

"We could see bundles coming down the line and we wanted to help influence how it happens rather than be pulled along," he says.

Leadership thought that, if well executed, the program could provide a competitive advantage through expected efficiencies in care, but more immediately, he says, it gave the organization a blueprint to "be inclusionary" for physicians involved in their system, however peripherally.

The doctors were initially very skeptical, says Whittington. Ultimately, he says, they cooperated, but not on the promise of a gainshare check. Instead, their hopes were more modest.

The surgeons didn't ever really expect to receive a gainshare check, but they were convinced that the health system was sincere (even if they thought leadership was wrong), and they hoped they could work together for good operational efficiency and build a busier practice, Whittington says. "They actually got both."

As the health system and the physician groups, through representative boards, sought to set up treatment protocols, supply chain agreements, and care pathways, they also began to focus on the postacute market, which was eye-opening.

"One thing we quickly learned is that there are nearly 70 skilled nursing facilities in San Antonio," he says. "I couldn't believe it. And we were probably using at least 50 of them."

Patient physician preference and geography are factors in those choices, but Whittington says the physicians were very engaged by that point; they understood the marketplace and the need for better rules of engagement.

Baptist used third-party data to analyze outcomes results for the SNFs the physicians on staff used at the time, and then evaluated them on care pathways the health system wanted them to follow, their ability to communicate, whether Baptist could share and receive data from them, and whether there were processes that the organizations could use jointly to reduce readmissions.

"We found that half of the 30-day readmissions were very preventable just with better communication between the postacute provider and the physician," says Whittington.

Baptist has no contractual relationships or volume guarantees with those organizations, but it did use its evaluation tools to create a preferred provider network.

"It's made up of postacute providers who understand how we want them to care for patients," Whittington says. "If they comply, we'll send them more patients."

This kind of transformation isn't a temporary one though, given the infrastructure requirements, says Reeve. "If you're going to be in bundles, you have to do them right, and that means committing resources to data, measuring with data, and working with doctors in a wholly different collaborative fashion," he says.

Where are the savings?
Bajner says one revelation was how much care and cost existed outside the walls of the hospital. In fact, one key question for participation in the ortho bundle, and the subsequent seven or so bundles Baptist has added since, was whether the hospital and the resources developed in conjunction with the surgeons would be enough to manage care effectively in a postacute environment without owning various pieces of the care continuum.

Overall, it's really about redefining how to deliver healthcare, and betting the organization was up to the challenge.

"We do not anticipate losing on anything; that's not how we do business. But you're right: We bet a lot on being able to change the way we deliver healthcare," says Whittington.

Under the ACE program, which is no longer active, Baptist participated in both the orthopedic and cardiac pilots. Now it participates in seven bundles in CMS' Bundled Payments for Care Improvement initiative, in which more than 500 organizations nationwide are testing how bundling payments for episodes of care can better coordinate care, achieve better quality, and lower costs for Medicare. At this point, almost 30% of Baptist's Medicare volume is bundled.

"To be honest, with four of those five we added in April 2015, we were higher than the target price, meaning that we were upside down. So there's that risk," says Whittington. "But we learned from what we did with the ortho bundle that there are things we can do that we've already put in place as a system to help with moving transitional care to the appropriate settings."

He says the biggest savings in all the bundles has come, not surprisingly, from moving away from heavy SNF utilization. Mobilizing home health to help patients stay in the home has been a big satisfier for them—and also a big money-saver.

"Lowering the appropriate level of care to really what it should be rather than the easiest place to get into has driven most of the savings, but still a quarter of savings is coming from operational efficiency because everyone's so engaged and aligned," says Whittington.

Part of that comes from achievements in the supply chain, especially with implants. With a standardized order set, Baptist now pays on average between 60% and 67% of what it was paying six years ago. That one standard order set for joint replacement has greater than 95% adherence.

But gainsharing has a notorious reputation among physicians for fading over time, which makes sense. Efficiencies and better standards of care can reduce cost only so far.

"That is the major concern of everyone involved, that gainsharing fades," says Whittington. "Physicians tell us this is great, and we can do this for a while, but CMS will see how efficient we've been and reset at a lower rate. It is a concern. Medicare probably has that in the back of their head."

Whittington and Reeve advise others in their position to carefully oversee any transition to a bundling program, and that leadership has to come from the C-suite. It can't be delegated because it is such a radical change.

Then, "understand your data and where your patients are going after they leave the hospital. Almost half the cost occurs after they leave, so there's a lot of work there that can be done," says Whittington. "And you need a physician champion; they might start skeptical, but get someone that others will listen to. Without a doubt we couldn't do this without them."

Commercial payer experience
Commercial bundles can also be a good place to get some experience, and the agreements are certainly potentially more flexible than CMS' bundling decrees.

It's hard to believe it's been going on so long, but Trisha Frick-Hoff, MS, RN, a nurse by training and nurse manager by background, has been overseeing the Johns Hopkins HealthCare LLC commercial bundled payment program for the past 15 years, although the volume and interest hasn't always been as hot as it is now.

As director for bundled rates contracting, she's responsible for price development, contracting, and operations. Glen Burnie, Maryland-based JHHC manages medical care contracts with organizations, government programs, and healthcare providers for more than 250,000 plan members and is owned jointly by Baltimore-based Johns Hopkins Health System and the Johns Hopkins University School of Medicine.

Before 2011, most of the bundling at Johns Hopkins was on bone marrow and solid organ transplants—strictly academic medical center-type, super-specialized stuff. Although Johns Hopkins still has bundling programs at one of its two academic medical center locations, much changed when PepsiCo and Johns Hopkins' struck the health system's first direct employer bundling agreement, also at first focused only on orthopedics.

"We had a short screening process that focused on quality, cost, and patient satisfaction," says Frick-Hoff. "When we passed the first test, we then had to submit more detailed data: pricing information and proposed bundled rates. We had a site visit, developed contracts, process flows, and what the deliverables were."

That grew eventually to become Johns Hopkins' high-volume travel surgery program. Other top customers that have signed on include the Pacific Business Group on Health, Lowe's, McKesson, and Walmart. With those programs and some specialized bundles with commercial payers, Johns Hopkins now offers commercial bundles on bone marrow transplants, solid organ transplants, joint replacements, and cardio. These are prospective bundles, as opposed to retrospective ones, as in the CMS mandatory program.

Although it will not be a participant anytime soon in any CMS bundling program (the state of Maryland is under a Medicare waiver), Johns Hopkins is betting that more bundling is on the way, and not just in the academic medical center.

"We are working on bariatric surgery and spine, and looking at certain surgical oncology procedures," Frick-Hoff says. "It's definitely a growth area. We're a pretty well-oiled machine now and generating almost $46 million in revenue this year on approximately 400 procedures."

A major difference in Johns Hopkins' commercial bundles versus the new CMS ones is that they do not include postacute care. Instead, the focus is on eliminating waste in the operating room as well as avoiding the need for skilled nursing altogether. The success of the bundling program lies more in selecting the right patient and providing the right care, she says.

By product line, joint replacement is 23% bundled, bone marrow at 50%, and solid organs are in the 20%-25% range. But cardio is at less than 5%.

"I think we still have a fair way to go," says Frick-Hoff. "We haven't launched this in any of our community hospitals, so there's still a lot of room for growth and for us to be more innovative. Not everything can be bundled, but it's one piece of the puzzle to help meet the triple aim."

Reeve, from San Antonio, also expresses a strong desire to participate in commercial bundles.

"We think we could help people and employers with better outcomes at a better cost," he says. "The commercial side will eventually head that way. There are numerous things that need to happen, but eventually it will and we'll be well positioned. From our side, we're ready to do it today."

Philip Betbeze is senior leadership editor with HealthLeaders Media. He can be reached at

Reprint HLR0316-5


Philip Betbeze is the senior leadership editor at HealthLeaders.

Tagged Under:

Get the latest on healthcare leadership in your inbox.