Is hospital’s success with bundled Medicare payments a sign of things to come?

Baptist Hospital System in San Antonio made a deal with Medicare that changed how it provided care for hip and knee replacements by departing from its old payment system and replacing it with a bundled payment approach, which appears to have lowered costs and shortened hospital stays, according to recent reporting by Kaiser Health News.

Pursuant to the bundled payment deal, Medicare made one payment to Baptist Hospital for knee and hip replacement surgeries to cover all providers for the entire episode of care. If the hospital and the surgeons could lower the costs and maintain quality, they could retain a portion of the savings, thus incentivizing everyone involved to keep costs down. Baptist Hospital and its surgeons took responsibility for the care of the patient for the entire month surrounding the surgery, including rehab. A preliminary study seems to indicate that such bundled payment method resulted in substantial increase in savings, shorter hospital stays, and lower costs for aftercare facilities like nursing homes.

The bundled payment system arises from the Patient Protection and Affordable Care Act (ACA)(P.L. 111-148). As part of the ACA, the Medicare and Medicaid Innovation Center was created for the purpose of testing “innovative payment and service delivery models to reduce program expenditures …while preserving or enhancing the quality of care” for those individuals who receive federal health program benefits. According to Kaiser Health News, the center has a $10 billion budget to launch experiments throughout the country to test methods to fix the Medicare and Medicaid payment systems.

In January of 2013, CMS announced the health care organizations selected to participate in the Bundled Payments for Care Improvement initiative, (BCPI), which was created to test out a new payment model. Under the BCPI, physicians, hospitals and other providers arrange to share a single payment for an entire episode of care, which is a departure from the current Medicare system of providing separate payments for the services furnished by each provider. The bundled payment makes the providers jointly accountable for the patient’s care. It also allows providers to achieve savings based on effectively managing resources as they provide treatment to the beneficiary throughout the episode.

The CMS website details the Bundled Payments for Care Improvement Initiative, which is being tested in the United States. Users can access the data to see where such bundled payment models are being tested.

In the Baptist Hospital example, the first step was to educate providers as to the true costs associated with services and devices they order. As reported by the Kaiser Health News, a participating surgeon, Dr. Sergio Viroslav, doctors commonly do not know of the costs associated with their patients’ care, “The public is like, ‘Wow, you guys have no idea what that costs.’ We never really did.”

Many of the surgeons were unaware that some hardware cost more than others and, thanks to the bundled payment incentives, were more likely to be cognizant of the costs. Also, half of the costs associated with the surgeries were attributable to post-surgery physical therapy, nursing visits and nursing home stays. Now, home rehab is ordered more frequently and any nursing home visits are coordinated in the attempt to avoid hospital readmission. The added incentives resulted in a savings of over $1 million in the first year, according to Michael Zucker, Baptist Hospital’s Chief Development Officer.

It is yet unclear whether this model would work on more complex surgeries, like heart transplants or other types of medical cases, or if it can even be implemented on a larger scale basis. As NPR recently reported, other experiments in coordinating care have seen mixed results. However, the Baptist Hospital experience may offer support for the application of the bundled payment model on a smaller level to individual surgeries or types of services.