Are You Ready to Deliver Bundled Services?
As retail consumers, we routinely encounter bundled pricing. Microsoft has marketed its suite of bundled software products for years. Cell phone providers have had great success with bundling contracts for families. Bundling works for consumers by simplifying the buying process and delivering quality and convenience at an attractive price. Bundling health care services into neatly wrapped “packages” is not as simple. The high and variable costs, the workforce involved, and each patient’s unique clinical needs make bundling more complicated in health care. Nevertheless, providers considering bundling their offerings can learn from the retail model.
What Benefits Can Bundled Services Deliver?
Bundling health care services has far-reaching value for health care organizations and consumers. A significant benefit of bundling is the opportunity to align incentives across providers to deliver coordinated and efficient care. Additionally, there is tremendous opportunity for growth in bundling services. Based on a 2013 study from the Catalyst for Payment Reform, only 1.6% of commercial payments flowed through bundled payment models, leaving the door open for organizational initiatives around bundling.
For consumers, employers and payers, bundling creates the opportunity to shop around for services based on quality, experience and price transparency. Bundling services eases consumers’ choices when they are shopping for their own care, since they are able to receive one upfront price for all services in an episode of care vs individual, variable and sometimes opaque prices for each discrete service needed.
However, bundling services into a single offering is not a cure-all for those organizations with weak clinical operations and limited provider integration. Organizations new to the process should proceed with a well-orchestrated strategy and understand the potential pitfalls before moving ahead.
Why Should You Consider Bundling Offerings?
- CMS’s Bundled Payment for Care Improvement (BPCI) initiative is moving full steam ahead. If all goes well with the phase 1 pilots, bundled payment will become a big part of its value-based reimbursement model. As in the past, if CMS is successful with its payment initiatives, commercial payers will most likely follow.
- Bundling services provides opportunities for direct-to-employer and consumer contracting. Online services such as MediBid allow patients to receive transparent price bids from providers, similar to Priceline for travel. Furthermore, reference pricing is a channel for providers to participate in direct-to-employer contracting, in which employers set a price ceiling for a specified procedure or service. The Pacific Business Group on Health is working with Lowe’s, Walmart and other employers to connect their employees to providers who deliver high-quality surgical care at a predetermined price.
- Ambulatory surgery centers (ASCs) are well-positioned to provide surgical services in bundles. ASCs can market their all-inclusive bundled procedures to consumers, creating new ambulatory opportunities in the market and threats to hospitals that are unprepared to compete on price and service. Orthopedic Surgery Center of Orange County advertises its all-inclusive rates (including the surgeon’s and anesthesiologist’s fees) for over 40 procedures, including total hip replacement with overnight recovery, and has experienced surgical volume growth as a result.
- States are beginning to get involved in bundled payment models. Arkansas and Tennessee are initiating episode-based bundled payment for high-volume procedures. These states will focus first on encounters such as total joint replacement, acute asthma exacerbation and labor and delivery. In Tennessee, the (ambitious) goal is to shift the majority of payment into episode-based models within five years.
- Consumers are demanding more price transparency. While early price transparency efforts may be underwhelming, states including New Hampshire and Massachusetts and payers such as United Healthcare have developed price transparency websites that are more sophisticated, comprehensive and easier to use, enabling consumers to query out-of-pocket estimates for select elective procedures.
What Can You Do to Increase the Success of Bundled Payment Initiatives?
- Understand why you want to venture down the bundled payment path. Bundling is not easy, and past bundled payment demonstration projects have had mixed results. Understanding and clearly communicating the desired business and clinical expectations while planning for potential risk and operational potholes will ease the transition to bundled payment.
- Assess your current cost accounting capabilities before jumping in. Health system cost accounting systems often lack the sophistication to provide cost analytics per procedure. Cost accounting capabilities that provide detailed insight into bundled procedure costs will help to appease medical staff members who want to understand the fruits of their care redesign efforts.
- Select low-variability procedures that enable bundling and risk management. According to a recent study published by the Rand Corporation, a key challenge that led to low participation in California’s bundled payment project was the difficulty in defining procedure bundles. High-volume, elective procedures with relatively predictable outcomes (such as total joint replacement) are good candidates for bundled payment initiatives.
- Build an efficient bundled procedure operation across the System of CARE.
- Align physician incentives to ensure they are working together to reduce variability and achieve positive outcomes.
- Create a laser-focused perioperative process that mitigates infections and other adverse events, efficiently utilizes OR time, and standardizes supply and device utilization.
- Coordinate and align incentives with high-quality post-acute providers to reduce potentially avoidable complications and readmissions.
The bundled payment movement will evolve over time—there are tremendous opportunities for edification along the way. It begins with the CMS BPCI initiative and a focus on higher-volume elective surgical procedures with lower cost and outcome variability. Leading organizations with a well-thought-out bundled service strategy that can deliver efficient, high-quality services spanning the encounter will be well-positioned for future market growth.
Sources: Overland D. Design influences bundled payment success. Fierce Health Payer. July 3, 2014; Rand Corporation. Effort to adopt bundled payments across California falls short of goals [press release]. August 4, 2014; Rand Corporation. Analysis of Bundled Payment. Accessed October 2014; Delbanco S. The payment reform landscape: bundled payment. Health Affairs Blog. July 2, 2014