Bundled Payments Encourage Quality, Savings, and Value

CMS really got my attention with their press release on bundled payments as a method of encouraging quality of care and cost savings. We first saw bundled payments emerge in the last couple of years with imaging studies. Now, CMS Innovation Center will start to phase in the use of bundled payments as a method of encouraging a more efficient approach to managing multiple procedures with a single payment instead of a fee-for-service method of submitting separate bills for each procedure.

I asked Dr. Dennis P. Scanlon, PhD, associate professor of Health Policy and Administration at Penn State University, about the new CMS financial incentives. Dr. Scanlon said, “It is a fundamental change is to incentivize hospitals with reimbursement by paying hospitals for managing a patient’s illness as opposed to per procedure.” This is similar to how the DRG system works but for outpatients.

It’s an interesting concept, but do the studies back up the theory? In 2007, Robert Wood Johnson founded the Prometheus Project. The study looked at the effects of bundled payments for six chronic conditions and four acute conditions or procedures requiring hospitalization. It concluded that national health care spending could be reduced by 5.4% ($19 billion) between 2010 and 2019 and providers can reduce avoidable complications costs between 25 to 50% by providing higher quality, more collaborative care.

The numbers do support bundled payments as a method of improving outcomes and controlling costs. However, for hospitals to benefit from this strategy there has to be a gate keeper.The bottom line is a shift from payments based on volume to payments based on performance.