Here’s how bundled payments work. CMS sets a target price for a medical or surgical episode. It pays providers on a fee for service basis through the course of care but after a certain amount of time the total cost of care is reconciled with the target amount. Hospitals get to pocket the difference or pay back the amount it cost to provide care for the patient above the target. Hospitals are “on the hook” for the cost of services provided within their facility and the cost of care when the patient leaves their four walls for a designated amount of time. This model requires hospitals to carefully control cost for services they provide and identify low cost providers to meet the patients needs once the patient leaves their facility.
Around a year ago CMS launched a bundled payment initiative for hospitals and ambulatory surgical centers that perform hip and knee replacements in certain areas of the country. The bundled payment program was launched as a demonstration and certain geographic areas were included. The bundled payment program pays the hospital on a fee for service basis for the surgery and any other services provided to the patient that relate to the joint replacement. Any additional services the patient needs for 90 days following the surgery are also tracked. Most patients who have an elective joint replacement will need either a skilled nursing stay or home health and many will then progress to outpatient rehab. Once 90 days passes the hospital where the surgery was performed gets to pocket some money or pay back the difference. You can see how hospitals have real incentive to reduce cost and identify low cost, high quality, post acute services.
CMS has now proposed bundled payments for three new episodes including heart attack, coronary artery bypass and hip fracture. The three diagnosis I just mentioned really raise the stakes and the difficulty in controlling cost. Elective joint replacements are just that, elective. Surgeons and hospitals can be selective about who they provide services to. If a patient is high risk or has other underlying health concerns a decision can be made to not provide the service. Heart attacks and hip fractures are different. No one plans to have a heart attack or fracture a hip. Patients who have these diagnosis are generally high risk and they tend to have complications because of comorbidities.
Bundled payments provide a lot of incentive for hospitals to reduce cost. It’s easier to reduce cost when the patient population is hand picked. The newly proposed expansion to bundled payments increases the complexity in controlling cost exponentially.