Bundled payments can help achieve the triple aim

February 26, 2014

With the proper incentives, collaboration among providers will accelerate.

FriendOne of the most significant challenges facing healthcare delivery in the United States is its fragmented and siloed nature. Over the last forty years, a revolution in medical science, technology and pharmaceuticals has occurred to the point where no individual, no matter how well-trained, can seemingly stay abreast of all the developments within clinical care. An unfortunate consequence of this explosion in knowledge and capability has been the fragmenting of the care delivery system. The proliferation of medical knowledge and increased specialization of providers to deal with the complexity is profound. Entirely new categories of providers, including hospitalists and nurse practitioners, have emerged to complement the growing number of medical and ancillary specialties.

This proliferation of providers followed a fragmentation of payment. With the upcoming adoption of the tenth revision of the International Statistical Classification of Diseases and Related Health Problems (ICD-10), a medical classification with more than 68,000 separate diagnoses and more than 18,000 separate procedures, we face a system that is increasingly complex and seemingly growing without consideration for the patient or provider.

In addition to the poor customer experience that many patients feel when they interact with their providers, there is growing recognition that the splintering of care and the failure of collaboration between providers has come at a tremendous financial

Pilchcost. According to Donald Berwick, MD, a former CMS Administrator, estimates are that up to one-third, or nearly $1 trillion, of healthcare expenditures is wasted, futile or potentially deleterious. Under the current payment mechanism, providers focus almost exclusively on stand-alone treatment provided to a patient. Each provider’s piece of the treatment may make sense in isolation when viewed in the context of maximizing the provider’s own reimbursement. However, treatment plans are often in conflict with each other when viewed in totality.

Aligned incentives

There are efforts on the part of the Centers for Medicare and Medicaid Services (CMS) and other payers to break this trend through the use of bundled payments. For example, orthopedic procedures, such as hip replacements, could be an appropriate situation for bundled payments. Under a bundled payment compensation system, one check would be written for all patient-required care including the hospital fee, the cost of the surgical implant, the surgeon's fee, medications, nursing home or assisted living facility costs post-surgery, the cost of the physical therapy the patient receives and the cost of home care. It would fall to the providers to determine how to allocate the payment.

The advantage of such bundled payments is that the economic incentives are now aligned for the providers to cooperate and collaborate in order to provide the best possible service. This leads to a virtuous circle for providers to deliver better quality, receive more patients, drive down cost, generate higher operating margins, generate higher profits and ultimately grow their business. The patients are the definitive winners as they receive better and more efficient care. The people who lose are those providers currently offering lower quality and less efficient service.

This transition to bundled payments requires providers to truly understand the financial and clinical aspects of their practice. They will need to master the true cost of care so that they can re-engineer the delivery model to make it more efficient.  At the same time, providers must keep tabs on improving clinical outcome. In addition, providers will need to understand their practices within the context of other providers who form the integrated supply chain required to deliver the patient’s full experience of care.

 

 

Establishing the "quarterback"

The move to a bundled payment system will also require the establishment of a individual or “quarterback,” a newly-created position who would advocate on behalf of the patient. This person will be equipped to coordinate and manage the various transitions of care between providers and settings. A well-trained quarterback will enable health providers to work at the top of their license and have patients cared for in the least expensive setting possible. The quarterback’s main role should be to ensure that the patient experience consists of the right care at the right time in the right setting at the right cost.

Integrating and quarterbacking the care patients receive will be very challenging. On one hand there's a need to keep track of scientific advances, which will grow in time. Further, allocating payments to a series of providers in a dynamic clinical setting will be very challenging.

However, new technology allowing a connectedness between healthcare providers is rapidly developing. Technologies such as IBM's Watson will help quarterbacks stay apprised of scientific advances and enable the coordination and collaboration among providers. Advances and lessons from supply chain management and advanced algorithms can enable more equitable distribution of payment.  With the proper incentives that can come from bundled payments, collaboration among providers to care for patients will accelerate and the ability to achieve the triple aim of providing better health, healthcare and value will increase.

David Friend, MD, MBA, and Patrick Pilch, MBA, CPA are managing directors of BDO Consulting Healthcare practice.