By Brian York, Vice President, Coverys Custom Accounts

A new reimbursement approach for healthcare providers is gaining steam. Bundled payments have come onto the scene as an innovative approach that may benefit payers, patients, and healthcare providers. But with these rewards come risks – which is why Coverys has developed a new product for healthcare providers to control the financial exposures associated with bundled payments. 

The History

The bundled payment program provides an alternative payment model to the traditional fee-for-service reimbursement model. The payer sets a target price to cover the costs associated with a specified episode of care. The payments for expenditures within each episode of care are reconciled to the target price at the end of a performance period.

The Centers for Medicare & Medicaid Services (CMS) has been experimenting with bundled payments for some time now. In 2013, CMS launched the Bundled Payments for Care Improvement (BPCI) initiative, which included four separate models of care.  Then in 2016, CMS launched the Comprehensive Care for Joint Replacement Model. This model, which will run through the end of 2020, uses a bundled payment approach for hip and knee replacements.

It doesn’t end there. In 2018, CMS launched BPCI Advanced, a new voluntary bundled payment model that covers 32 different clinical episodes. This program will continue through the end of 2023. Currently, around 1,500 providers are participating in this model.

While CMS is leading the way in bundled payments, commercial payers have taken note, and some are getting in on the trend. Bundled payments are expected to rise in popularity, and by 2025, CMS is pushing to have 100% of providers in a downside risk sharing arrangement. Providers need to be aware of both the advantages and disadvantages of this system.

The Rewards

CMS has argued that the traditional fee-for-service model can lead to fragmented care. This can hurt patients and drive up costs—problems that the bundled payment system seeks to address. The bundled payment system offers something for everyone.
  • Payers get to share their risk with the providers in charge of care. By setting target prices, they are able to control costs.
  • Patients get value-based care. The focus is on quality, not quantity. Providers are incentivized to redesign care delivery and provide coordinated care that is as efficient as possible.
  • Providers have the opportunity to increase profits. By providing excellent care that is cost-effective and yields good outcomes, providers can keep costs within target prices, thereby increasing their revenue.

This system is exciting. However, before providers dive into bundled payments, they need to be aware of the risks.

The Risks

While healthcare providers can increase profits by providing care at a cost that is below the target price established by the bundled payment system, the opposite can also happen. If costs exceed the target price, providers can take a significant loss. Sometimes, this may happen for reasons that are out of the provider’s control.

In the BPCI Advanced model, the target price contemplates the initial procedure as well as a 90-day recovery period that starts on the day of discharge or, in the case of outpatient procedures, upon completion of the procedure. This is a significant period of time during which things can go wrong, especially among patients with comorbidities. Some of these things include:
  • Complications
  • Infections
  • Readmittance
  • Revision surgery 
These outlier situations could easily double or triple the cost of care. When this happens, the provider would likely incur a loss.

Mitigating Risks

The bundled payment system is a huge emerging market that looks very promising. Entrepreneurial providers may find that it’s worthwhile to take on the associated risks, but they should also take the following steps to protect themselves:
  • Do the research. An analysis of historical performance can help you predict your expected performance.
  • Assess your partners. Ancillary services, such as physical therapy or skilled nursing, can impact the bundled payments package. They must provide value-based care too.
  • Maintain excellent communication with patients and other providers.
  • Understand that you may not always make money. Difficult cases can result in losses.
  • Take the risk seriously. As always, it’s important to look for ways to manage the risk.