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Bundled payments expected to reward providers


CMS will begin demonstration projects to further test the promise of P4P by bundling payments for certain services as single case-rates

In the mid-1990s, Medi care tested a bundled-payment reimbursement arrangement for cardiac bypass surgery at four hospitals and was able to document savings. Provider pushback hampered further efforts, and the bundled payment concept died out. Until now.

Experts worldwide are now recommending some type of bundled payment system that incorporates a pay-for-performance (P4P) component. However, as James Bentley, senior vice president for policy planning at the American Hospital Assn., said in the Washington Health Policy Week in Review, "We've got to learn to walk before we can run."

The 1990s CMS project was not a rousing success from the providers' point of view. Some hospitals that lost market share believed the government didn't promote the project sufficiently to drive the volume they wanted. Hospitals were able to reduce unnecessary testing and make generic substitutions while also reducing lengths of stay. According to CMS, quality directors at those facilities said that increased physician emphasis on avoiding complications was the primary cause for quality improvements.

With memories of the failed capitation movement, participating providers were reluctant to adopt bundled-payment projects anytime soon, and the majority believed they should have received extra payments to cover the expense of implementing the new billing arrangements.

Current P4P trends have renewed interest in bundled payment and other types of payment reform, but this time, payers are counting on widespread provider support now that P4P has become more mainstream. In fact, a 2007 Med-Vantage national study showed that in 2003, there were only 39 P4P programs, but that number grew to 148 by 2007.

The new CMS Acute Care Episode (ACE) project, scheduled to begin January 1, 2009, will be conducted in Texas, Oklahoma, New Mexico and Colorado, although there will be only one demonstration site in each market during the program's first year. Rather than the usual separate payments for Part A and Part B, CMS will provide a single payment to hospitals and providers for 28 cardiac and nine orthopedic inpatient surgical services. Because the predetermined payment will be split between the hospital and physicians, Medicare hopes they will collaborate more closely to avoid complications and unnecessary procedures, thus preserving more of the payment for themselves.

Should the program be successful, it doesn't mean that there will be a one-size-fits-all approach to bundling payments in the future, experts say. As long as the payment model is fair, understandable and takes provider concerns about risk into account, the system should naturally organize itself around the model to make it more effective and efficient.

Best of all, it doesn't require a complete tear-down of the current system, according to Stephen Schoenbaum, MD, MPH, the Commonwealth Fund Commission's executive vice president of programs and executive director of the Commission on a High Performance Health System.

"The structural elements that we need currently exist in our healthcare system, but we need them to be better organized," he says. "We don't want fragments of care, because that leads to fragmented payment. By bundling care and payments, we take one step closer to caring for the whole person."


In August, the Commonwealth Fund Commission published "Organizing the U.S. Health Care Delivery System for High Performance." While the report focused on fragmentation of care, particularly at the community level, payment reform was one of its major recommendations.

Ideally, the payments would bundle all related medical services, from initial hospitalization to a defined period post-hospitalization, including preventable rehospitalizations. Payments also would be risk-adjusted to avoid adverse patient selection. The report continues to say that P4P should be expanded and that the more bundled the payment mechanism, the greater the proportion of the payment should be tied to performance.

The study revealed four significant findings:

However, Dr. Schoenbaum acknowledges that if we build it, they still might not come. After providers' experience with capitation in the 1990s, the majority might still be gun-shy about assuming financial risk for providing care.

"To encourage [a bundled payment system], we're going to need to give significant attention to the incentives that we offer providers," Dr. Schoenbaum says. "Anything that sounds remotely like capitation is going to cause them to say, 'We've been there. It was awful, and we aren't doing that again.'"

To get provider buy-in, payers will need to reassure providers that their needs have been addressed. If insurers agree to pay providers fairly, and providers are given the freedom to organize themselves in a model that allows them to provide high-quality care, then "we can at least sit down at the table and start to figure out the details," he says.


The healthcare payment model of the future might be named after a mythical story from the past. According to Greek mythology, the gods kept the secret of fire from mortals, but Prometheus-one of gods' archrival Titans-taught humanity how to create fire.

True to its name, Prometheus Payment Inc., a not-for-profit corporation launched with a $6 million grant from the Robert Wood Johnson Foundation, was created to shed light on these dark days of healthcare payment reform. The model's moniker, PROMETHEUS, stands for Provider payment Reform for Outcomes, Margins, Evidence Transparency, Hassle reduction, Excellence, Understandability, and Sustainability.

By creating common clinical incentives for all parties, the organization strives to improve quality, lower administrative costs and facilitate better clinical coordination. Its payment model is expected to create an environment where doing the right things for the patient helps providers and insurers do well for themselves. Pilot projects target lung and colon cancer through Stage III; three interventional cardiology diagnoses; knee and hip replacements; primary care of diabetes and depression; and preventive care.

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