Bundle services to cut costs

An analysis of more than 51,000 cases of total knee replacements over a two and a half year period, for Medicare and commercially insured plan members, found that commercial payers spend an average $3,200 (15%) more per procedure than Medicare, mostly due to higher inpatient stay costs. It also found that Medicare and commercial payers could save between 5% and 10% of their current case costs by reducing spending on potentially avoidable complications via mechanisms such as bundled payments.

The research was conducted by the non-profit Health Care Incentives Improvement Institute, Inc. (HCI3). A bundled payment refers to paying for a patient’s entire care episode rather than individually for every test and treatment.

According to Francois de Brantes, executive director for the HCI3, bundled payments can save payers money in two ways. First, excess costs, such as those caused by potentially avoidable complications are not paid separately. The bundle includes all services for a specific period of time centered on a procedure or chronic condition.

“For example, a bundled payment for a total knee replacement procedure would include the inpatient stay costs, all of the professional services associated to the stay, and all related post-acute care costs for a period of 90 days. If a patient is readmitted, the provider would not be able to bill for that readmission, not would the provider be able to charge extra for complications that occur during the procedure.

Second, creating a bundle gives the hospital and surgeons an incentive to negotiate aggressive discounts for the implants with the implant manufacturers.

“Our analysis shows that there is a significant amount of variation in the typical costs of the procedure, and in particular in the cost of the knee implant. Hospitals most often simply tack on the cost of the implant that is used during the procedure on top of its normal claim for the hospital costs.”

But before offering bundled payments, payers must consider what internal processes and systems will be affected. de Brantes says provider contracts must be updated to bind them to the overall cost of the bundle and add negotiable parameters that include items such as stop loss provisions. Payers will also need to upgrade their claims systems or bolt on applications that will allow them to calculate bundles and reconcile fee-for-service payments against those bundles.

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