Bundling payments may make biggest dent in health care spending

That's the conclusion of a study by the RAND Corp., which looked into ways to cut expenses.

By Victoria Stagg Elliott — Posted Dec. 1, 2009

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Having a single flat rate for an episode of patient care -- rather than a separate charge for the various services received -- is the strategy with the most potential to reduce health system costs, according to a paper published online in the New England Journal of Medicine Nov. 11.

"There are a lot of potential savings," said Peter S. Hussey, PhD, a policy researcher at the RAND Corp.

Researchers analyzed data on eight options for controlling the amount of money spent on health care. Bundling payments has the potential to reduce the total cost of medical care nationally by 5.4% if used in both the inpatient and outpatient setting, and if expenses related to avoidable complications can be cut by between 25% and 50%. If bundling is applied only to hospital services, the expense reduction would be 0.1%.

"Hospitals are the most feasible place to start, but it is not where the significant savings are," Hussey said.

This proposal is controversial, however, and attempts by various insurers to bundle payments frequently have chafed physicians. The American Medical Association is opposed to inappropriate bundling by third-party payers. In addition, a report issued in June by the AMA Council on Medical Service stated that the organization would work with the relevant entities to ensure that bundled payments, if implemented, do not lead to hospital-controlled payments to physicians.

Other possibilities RAND cited for savings include regulating hospital rates, which could cut health care expenses by as much as 2%, although more pessimistic estimates suggest that they would have no impact at all. Implementing health information technology would reduce them by 1.5% or increase them by 0.8%. The projected impact of disease management ranges from a cost savings of 1.3% to an increased expense of 1%.

"If our optimistic estimates prove true, then health care spending can be slowed substantially," Hussey said. "But our lower-bound estimates are far more pessimistic, showing how much uncertainty there is about these approaches."

The AMA supports health insurance coverage for all, expanding choices of affordable coverage and eliminating denials for preexisting conditions. The organization also advocates streamlining and standardizing insurance claims processing to reduce unnecessary costs.

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