Bundled Payments for Episodes-of-Care and Conditions That Cost Government a Bundle

In the quest to manage the spiraling cost of U.S. health care, one approach has generated great interest. The philosophy behind much current policy — including the Affordable Care Act (ACA) — is that aggregating fee-for-service reimbursement into payments for broader bundles of care will lead to greater efficiency in the provision of care and thus lower costs.

Under the accountable care organization model, perhaps the best-known example of this strategy, medical reimbursements are aggregated to the person-year level. Other programs aggregate reimbursement for episodes of care — for example, care for a particular cardiovascular or orthopedic condition. The Episode of Care Payment Demonstration project, which is authorized by the ACA, requires the Centers for Medicare and Medicaid Services to experiment with bundling Medicare Part A and Part B payments for inpatient care.

David Cutler, PhD, Kaushik Ghost, PhD, Department of Economics, Harvard University, and National Bureau of Economic Research, both in Cambridge, Mass., “The Potential for Cost Savings through Bundled Billing Episodes, New England Journal of Medicine, March 22, 2012

Definition of Bottleneck – DELAY IN PROGRESS a delay caused when one part of a process or activity is slower than the others and so hinder overall progress.

Dictionary definition of Bottleneck

March 25, 2015 - I find it inevitable that two PhDs steeped in data analysis from Cambridge, Massachusetts, would write on the theoretical effects of bundled billing as proposed by the Accountable Care Act. Dr. Cutler, after all, is the principal health care advisor for President Obama. Cutler and Ghosh reside in Cambridge, where many of the architects of Obamacare reside and where President Obama received his law degree at Harvard.

I interviewed Dr. Cutler in 2004, wrote oftenn about bundled billing in previous blogs, and have on-the-ground experience in creating episode of care blogs for a community hospital and its medical staff.

In their NEJM article, Cutler and Kaushik say that by moving from a FFS model to bundled payments for episodes of care could save the health system as much as $10 billion. They list these 17 conditions as accounting as the top most expensive in spending for Medicare.

1. Osteoarthritis, $7.3 billion

2. Coronary and other heart disease, $6.5 billion

3. Fracture of neck of femur, $5.8 billion

4. Congestive heart failure, $5.8 billion

5. Acute cerebrovascular disease, $4.8 billion

6. Pneumonia, $4.7 billion

7. Cardiac dysrhythmias, $4.4 billion

8. Acute myocardial infraction, $.4 billion

9. Complications of device, implant, or graft, $3,2 billion

10. Spondylosis, intervertebral discs, other back problems, $3.1 billion

11. Septicemia, $2.7 billion

12. COPD, bronchiectasis

13. Urinary tract infections, $2.3 billion

14. Respiratory failure or arrest, $2.1 billion

15. Acute or unspecified renal failure, $1.8 billion

16. Other fractures $1.8 billion

17. Heart value s, $1.6 billion
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Total spending $64.8 billion

“Bundlenecks”

The $64 billion question is, will bundled billing lower the cost of health care? But even if government decides that bundling will help do away with fee-for-service payment for costly procedures for episodes of care, vexing questions remain.

For brevity’s sake, let’s call these bundled billing bottlenecks “bundlenecks.”

Here are my questions.

• Should government bundle by per episode of care, or should governmet bundle by per person-month, as envisioned for accountable care organizations by government bureaucrats? Cutler and Ghost clearly prefer bundling per episode at the more practical approach. In the following paragraph towards the end of their article, they indirectly indicate the process may not be easy,

“Broadening the unit of payment will require reaching across different types of providers and helping to stitch together real delivery systems where now there are none.”

• Based on my experiences on the ground, these bundlenecks emerge. Who should take the hit on “savings,” which will come at the cost of either decreased hospital revenues or diminished doctors’incomes? What if health plans do not choose to pay for bundles, instead preferring to negotiate separately with hospitals and doctors ? What about episodes-of-care complications, which will drive costs above the original estimates for costs per episode? How does one pay for the cost overruns? By reinsurance policies or by punishing hospitals and doctors? And what if a critical specialty group, such as radiologists, decides not to participate? How does one bring them into the episode-of-care fold?

I do not wish to be a bundling, or bungling, devil’s advocate, but as with any new billing process involving provider incomes, one must anticipate bottlenecks.

Tweet: Bundled billing for episodes of care is an attractive model for saving money, but there are practical pitfalls and bottlenecks.