Will bundling include doctors? Medicare looking for alternative payment plans

CMS is testing bundled payments to hospital-physician groups for inpatient episodes of care. Expanding to post-acute care may be the next step.

By Geri Aston — Posted Jan. 4, 2010

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The Medicare fee-for-service payment system is failing. It encourages too many patient visits and discourages care coordination and quality improvement. These misplaced incentives are helping to fuel unsustainable growth in health care spending.

So goes the primary argument in Congress and other policy circles behind a proposed new approach to paying physicians and hospitals under Medicare: bundled payment. Already it has led to a Medicare demonstration program. Both of the health system reform bills under consideration in Congress would expand the project.

In a bundled model, physician and hospital payments are lumped together in a "global" payment. Instead of being paid for each visit or procedure, doctors and hospitals are paid for all services to a patient in an episode of care for a particular condition. Depending on how a project is structured, an episode could be defined several ways -- a period of hospitalization, hospitalization plus a period of post-acute care, a stretch of care for a chronic condition, or even all inpatient or outpatient care.

Hospitals already have experience with a form of bundled payments through the diagnosis-related group payment system. But extending the concept to physicians would encourage doctors and hospitals to work together to control costs and improve quality, stated the Medicare Payment Advisory Commission in a June 2008 report calling for Medicare to test payment bundling.

Doctors, however, have concerns about the idea. They worry that sending the lump payments to hospitals would give hospitals too much control over physician rates, that bundled pay would provide an incentive to skimp on needed care to maximize profits, and that a focus on acute care episodes would leave primary care doctors out in the cold.

Some of these potential pitfalls were discussed in an American Medical Association Council on Medical Service report adopted at the Association's 2009 Annual Meeting. One of the report's directives is for the AMA to work "to ensure that bundled payments, if implemented, do not lead to hospital-controlled payments to physicians."

Selling physicians on bundling

Physicians must be involved in decisions about where bundled payments go, how and to whom they're distributed, and what the distribution criteria are, said William Kobler, MD, the council's chair-elect, speaking on his own behalf. "It's not that we don't 'trust' the hospitals, but we want to be sure that, if we're working together on this, physicians get paid their fair share."

Michael Zucker, senior vice president and chief development officer at Baptist Health System, understands that concern. "If I were a physician, the very last place I would want my money going to is the hospital. What happens when it gets to the hospital?"

San Antonio-based Baptist is one of five sites chosen for the Medicare bundled payment initiative known as the Acute Care Episode Demonstration. The three-year project, which launched in the spring of 2009, bundles Part A and Part B payment for inpatient episodes of care for select orthopedic and cardiovascular procedures. It currently is active at two sites. Participants are required to have a physician-hospital organization, but the payment goes to the hospital for distribution.

A PHO already existed at Baptist, but the system created a new one, with physicians involved in the new organization. Although all payments go to the hospital, the new PHO handles all of the decision-making.

That was instrumental in establishing physician trust, Zucker said. A third-party administrator handles the claims for beneficiaries in the demonstration program.

To address physicians' fears, the health system also decided not to require any monetary concessions from doctors, Zucker said. Hospitals applying for the demonstration had to submit bids to Medicare with discounts on each DRG. Those savings, for which Baptist assumed full financial responsibility, are split evenly between Medicare and beneficiaries.

One of Baptist's main goals was to align with physicians, Zucker said. Under the demonstration, hospitals can share any savings with physicians over those offered in the bid as long as these gainsharing amounts don't exceed 25% of their fee schedule.

Hospital officials explained to doctors, "We're going to keep you whole on your Part B fee schedule, and if you can help us improve quality and lower our costs, then you have upsides," Zucker said. That resonated with physicians.

The system also held meetings about the program with specialists who would be affected. Some doctors understood the concept from the beginning, Zucker said. "They might have had some skepticism, but they knew things were going to be different in the future and had some of that forward-thinking mindset of, 'Maybe if we can be a part of designing this on the front end, we can design it so it works well and protects our interests.' "

Maintaining quality

When it comes to payment bundling's impact on quality, physician worries largely are the legacy of insurance capitation efforts of the 1990s, said Bruce Bagley, MD, medical director for quality improvement for the American Academy of Family Physicians. Back then, managed care plans paid physicians a fixed fee per patient, but the quality field wasn't advanced enough to keep track of the effect on patient care.

"Before, it was just, 'Sure, I'm doing a great job. I'm not keeping people from getting care that they need. Trust me.' Now we have a better way to actually monitor that," Dr. Bagley said.

The Medicare pilot tries to address the concern that doctors and hospitals might skimp on needed care by requiring participants to report on several quality measures quarterly. At Baptist, where the program launched in June 2009, individual hospitals and physicians must demonstrate that they both cleared quality hurdles and saved money before receiving any gainsharing pay, Zucker said.

In the first month, only a few of the 150 or so eligible doctors received bonuses, which are given monthly, Zucker said. That figure has grown steadily to 90 doctors. "This is indicative of costs coming down and the quality going up."

Standardizing options for expensive medical devices has produced the biggest savings, Zucker said. The system has narrowed its vendor list to two or three for each device and negotiated price concessions. "The only reason we could do that was because the physicians had come together."

Zucker said he was not at liberty to share details on how much the system has saved but that the number already is in the seven figures.

Baptist's quality scores have improved, too. For example, post-surgical infection rates have gone down, as have patient lengths of stay. The gains are due to the demonstration prompting a focus on care protocols and evidence-based medicine, Zucker explained.

Moving beyond the inpatient arena

Because the Medicare project looks just at hospitalization, it doesn't yet test how bundled payment would work for post-acute, chronic or primary care. But to restrain health care spending growth and foster care coordination, bundling would have to include those types of care, some experts say

In a study in the Nov. 26, 2009, New England Journal of Medicine, researchers from RAND Health found that of eight spending reform options they studied, bundled payment would save the most health care money, but only if it extended beyond hospital-based services.

So far, all of the attention is on hospital care because it is so expensive, Dr. Bagley said. "As a result, there is probably too much emphasis on hospitals."

To keep focusing just on hospital care would be a mistake, said AAFP President Lori J. Heim, MD. Payment should be centered on primary care, because those are the doctors who manage patients' care and keep them out of the hospital, she argued.

A privately funded effort, called Prometheus Payment Inc., is testing a form of bundled payment that moves beyond hospital care. The project, which is funded by the Robert Wood Johnson Foundation, is at four sites, with two more in the works. It includes acute care but also several chronic conditions, such as diabetes and asthma.

At the Centers for Medicare & Medicaid Services, officials have discussed expanding the acute care episode demonstration to include post-acute care and hospital readmissions, said Cynthia Mason, RN, the agency's top officer for the initiative. "We will be looking at various chronic conditions to see which ones could be possibly incorporated into this type of model."

The House and Senate health system reform bills call for incorporating post-acute care into bundling.

But even if bundled payment initiatives prove successful, the government cannot just flip a switch and move all of Medicare to this model -- nor should it, Dr. Bagley and Zucker cautioned.

"It would be a gargantuan task," Dr. Bagley said. He predicted the government was more likely to take the most logical 20 or 30 conditions and bundle payments for them.

At Baptist, the Medicare project is "probably the hardest thing we've ever had to do," Zucker said. "It's been so resource-intensive."

The health system has had to pay for the extra manpower in the finance and quality departments, for the third-party administrator, and for marketing to beneficiaries, he said. It also hired nurse navigators to manage patient cases.

"But if somebody were to ask me has the demonstration program in six months been a success, I would say yes," Zucker said.

Baptist has lowered its costs, generated savings for CMS and Medicare beneficiaries, begun rewarding good physicians, created better alignment with the medical staff, and increased the practice of evidence-based medicine, he explained. "We've demonstrated that we can have success when physicians and hospitals are working together."

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A bundle of savings

Out of eight options, RAND Health researchers concluded payment bundling is the most promising way to save money. Because Medicare already bundles hospital payments through the DRG system, hospital-only bundling would save only 0.1% over 10 years. But bundling payments to all payers for treating chronic diseases could save the system more than 5% over the decade.

Reform concept Projected range in national health spending change (2010-19)
Bundling payments -5.4% to -0.1%
Regulating hospital rates -2.0% to 0.0%
Implementing health information technology -1.5% to 0.8%
Launching disease management -1.3% to 1.0%
Creating medical homes -1.2% to 0.4%
Increasing retail clinics -0.6% to 0.0%
Expanding scope of practice -0.5% to -0.3%
Changing benefits design -0.3% to 0.2%

Note: "Expanding scope of practice" refers to nurse practitioners and physician assistants

Source: "Controlling U.S. Health Care Spending -- Separating Promising from Unpromising Approaches," New England Journal of Medicine, Nov. 26 (link)

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