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Bundled Payments: A Bundle of Trouble for Unprepared Physicians


Bundling payments for care episodes is gaining popularity among payers. It is episodic risk-sharing, and it can be risky business for physicians.

Bundling payments for care episodes is gaining popularity among payers. The new payment method is probably a part of the future, like it or not, ready or not, and it can be a loser for physicians unless they are properly equipped to take charge of the process. 

If, however, physicians are entrepreneurial and willing to manage the process of care, bundled payments can represent a huge opportunity.

There are two bundled payment methods: utilization and disbursement. Both methods are priced similar to a hospital diagnostic related group (DRG) where a dollar amount is budgeted for the episode. The provider keeps the difference if the cost is under budget; he pays if it is over.

In the utilization method, claims are paid at contracted rates. The managing provider keeps the difference if fewer services are used and pays if more are used.

In the disbursement method, the full bundle amount is paid to the managing provider, who negotiates and disburses payments to other providers and keeps or pays the difference.

Some orthopedic surgeons have been working successfully with payment bundles for implant cases for years. Here’s how they do it, and how you can do it too:

1. They use price, quality, and outcome transparency. In the simplest terms, if a case pays $30,000 and the surgeon brings it in for $28,000, the surgeons keeps the difference. That means that the surgeon has to know what each element - from the implant to the consulting specialists to the hospital or ambulatory surgical center (ASC) - costs, and the surgeon has to know how to manage the case. The orthopedist is the general contractor and all other services are contracted. If the orthopedist commands enough volume, that creates price competition for surgical assistants, ASC use, hospital use, anesthesia services, physical therapy and rehabilitation medicine, and durable medical equipment, including hardware.  The orthopedist manages both the utilization and the unit cost of these services to bring in the best outcome at a reasonable cost, and because most of these services have historically been overpriced, the cost savings can be considerable.

2. They use volume aggregators. Specialty Group Purchasing Organizations (GPOs) are the most effective because they seek the best values, aggregating the hardware and supply needs of all of their members; and they purchase in bulk, often at steep discounts. It's kind of like the Costco for surgical implants.

3. They use commercial partners. GPOs with sophisticated decision-making software, pre-negotiated payer agreements, and expertise in managing episodic bundles profitably, can provide invaluable support and unbeatable pricing on the most expensive case elements. For general orthopedic surgeons and orthopedic and neuro-spine specialists, Access MediQuip is the oldest, largest, and most experienced, and, it will likely be getting a lot of company in the next few years indicating a net gain for physicians.

Innovative entrepreneurial physician groups who provide high volumes of repetitive specialized services that also involve other providers can also play in this game without a great deal of support. 

Consider the gastroenterologist who has access to a low-cost endoscopy center, and is tired of seeing the out-of-network anesthesiologist receive five times the reimbursement that she does for every colonoscopy performed.  By negotiating a reasonably low charge with the endoscopy center (which she might own or be a partner in) and subcontracting with a nurse anesthetist, a fairly priced colonoscopy would net a profit for all subcontracted vendors. The gastroenterologist, the supporting cast, and the payer see fair compensation and generate a considerable cost savings from the current practice of using out-of-network anesthesiologists and paying outpatient hospital pricing.

Bundled reimbursement for primary care may be closer than many physicians think, particularly for common episodic encounters and chronic diseases.  The concept is not new.  Think of it as “contact capitation.”  DRGs have been very successful for both hospitals and Medicare despite the hospitals having limited control over utilization. Imagine what an entrepreneurial, empowered physician community could do.

Physicians can have control over the entire process, if they are willing to be accountable and to take responsibility for healthcare costs.  The best will embrace the opportunity, benefit financially, and be part of the solution.


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