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How Bundled Payments Affect Physicians

How Bundled Payments Affect Physicians

Physicians at Nashville's Vanderbilt University Medical Center are encountering a new type of reimbursement model. In January, CMS selected the institution to participate in the Medicare Bundled Payments for Care Improvement initiative, in which participants receive one predetermined payment "bundle" for all the services associated with a particular episode of care, such as a hip or knee replacement. Vanderbilt elected to participate in Model 2 of four payment models in the Medicare initiative — meaning the health system will keep the savings if it manages to keep the costs of a particular episode of care below the predetermined bundled amount, and it will pay the difference if it does not.

Edward Marx, Vanderbilt's director of strategic analytics, says the institution's decision to participate in the inititiative was driven, in part, by the fact that it viewed bundled payments as a way to begin transitioning toward broader value-based reimbursement models. "With bundled payments we're not at population health but we're at the step before that," says Marx. "You're taking control of patients for a certain length of time and you're going to manage their condition, or their surgery, or whatever it is, and coordinate all their care."

Vanderbilt is not alone in viewing bundled payments as a way to begin transitioning from traditional fee-for-service reimbursement. More than 450 organizations are participating in the Medicare initiative, and private payers are offering similar programs. But uncertainty remains among physicians regarding what bundling is, how it works, and how it will affect them. To help clear up the confusion, we asked experts to weigh in. Here's how they say bundled payments are developing and how you can navigate the changing landscape.

What it is

The concept of bundled payments may sound familiar. Payment bundling has actually existed for decades. Surgeons, for instance, often receive one payment for surgery, as well as all associated pre- and post-op visits. What's different now is that many of the emerging bundled payment initiatives are broader, says Peter Hussey, a policy researcher at the RAND Corporation, a nonprofit research think tank, and a professor at the Pardee RAND Graduate School. "The way it's changing now is the bundles are getting bigger and they're expanding to include longer periods of time and also multiple providers in a lot of instances, which make them a lot more complex, but also, potentially, can increase coordination across providers over time," says Hussey.

The increasing complexity of bundled payments and the increasing number of payers offering new bundling opportunities makes it difficult to provide a universal definition of a bundled payment. The services included in a bundle, for instance, might vary depending on the participating payer and provider. For instance, bundled payment for a knee replacement might include the inpatient stay; the services provided by the surgeon, anesthesiologist, and other providers; and post-acute care. While another payer might include only a few of those services.

How it works

Often, the bundled payment offered by a payer is a few percentage points smaller than the sum of all the payments if doled out individually, says Rob Lazerow, practice manager for the research and insights division at global consulting firm The Advisory Board Company. "That confers some type of risk or creates some type of risk that someone has to bear," says Lazerow, who is based in Washington, D.C., adding that hospitals often take on that risk to encourage physician involvement in bundled payments — at least at first.

In Vanderbilt's payment model, CMS is paying for services typically bundled together according to the current fee-for-service schedule. After the episode of care is concluded, CMS compares the total amount of payments to the predetermined bundled amount. If the total amount paid to providers exceeds the bundle, providers pay the difference to CMS. Vanderbilt, however, is ensuring that individual providers don't have to worry about that financial risk because it views bundled payments as a "learning experience," says Marx. "We own the risk. So if it becomes more expensive, the institution as a whole is going to be the one who is saying, 'Hey, we're footing the bill.'"

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