If the U.S. healthcare system ever successfully completes the transition to fee for outcomes in lieu of our current system of fee for volume, bundled payments are likely to play a key role.
The theory behind bundled payments is solid: Pay providers a risk-adjusted fixed amount to treat a certain medical condition—regardless of the number of services they deliver—and allow them to share in any savings when costs are below that amount. As a result of this payment structure, providers will be incentivized to deliver high-quality care that keeps patients healthy at a low cost.
However, while bundled payments have certainly shown some potential in this regard—particularly for some non-urgent surgical procedures—the healthcare industry has yet to identify the correct bundled payment contracting strategy and methodologies that will scale to widespread adoption.
The reasons for the collective resistance to scale bundled payments vary, and include a lack of standard definitions for bundles, risk aversion, and a dearth of available resources for providers. Regardless, the uneven progress toward successfully implementing bundled payments presents a significant opportunity for the industry to fine-tune its approach to fully take advantage of this promising alternative payment model.
Where bundled payments stand today
For providers, the biggest change from the status quo associated with adopting a bundled payments model stems from possibly assuming more financial risk around patient outcomes. Along with the opportunity to share in savings when costs fall below the target payment amount comes the alternative: the risk of covering overruns when costs exceed the target amount due to complications or readmissions.
Under a bundled model, payments to providers may be prospective, or more commonly, retrospective. In a typical retrospective model, providers receive their usual fee-for-service (FFS) payments, and the total FFS payment for the clinical episode is reconciled against a predetermined risk-adjusted target price after a given time period. Providers that deliver care for less than the target amount receive a reconciliation payment, while providers that exceed the target price may owe a reconciliation payment to the payer.