Bundled payment experiment fails

As stakeholders implement the Affordable Care Act (ACA), innovative payment models are developing faster than practical applications. Bundled payments, defined as “a fixed payment that covers the average cost of a bundle of services” are the latest fad touted as a means to reduce cost and improve quality of care. Recently, the Integrated Healthcare Association (IHA) of California experimented with bundled payments with a $2.9 million evaluation grant. The goal was to determine whether bundled payment for orthopedic procedures for Californians younger than age sixty-five with commercial insurance could be implemented by health plans, hospitals, and physician organizations across the state. The participants included six large health plans, five hospitals, an independent practice association, and a state regulatory agency. The project attempted to define procedure bundles (services in each bundle) and corresponding payments.

Source: Lauren Nelson (Flickr/CC)

However, the project failed before it launched. Early on, three health plans and three hospitals dropped out, and with attrition, the volume of orthopedic procedures was substantially low (35 cases in three years). Investigators then conducted a qualitative evaluation by interviewing representatives from participating organizations, and three common reasons for the demonstration failure emerged. First, participants had difficulties developing bundle definitions. They could not achieve consensus on the bundle elements and disagreed over patient exclusions, length of care, amount and level of service. Second, participants cited lack of trust and competing interests among stakeholders. Instead of jointly developing comprehensive service lines, hospitals, payers, and providers approached the process with self-interested goals. Third, there was a lack of established technological infrastructure for processing and paying claims.

Still, the authors note, “Despite the failure of the pilot, health plan, hospital, and physician participants somewhat surprisingly continue to be interested in bundled payment arrangements.” Overall, the project reflects a paralyzing lack of cohesion in local and national health care delivery systems. The patchwork design of public, private, for profit, not-for-profit and self-pay payers of our health care system continue to frustrate reform efforts. The IHA project reveals that payment fads fail to achieve meaningful results, proving that you can’t build homes on broken foundations.

commentary by Laura Grubb, MD, MPH, FAAP

Abstract

To determine whether bundled payment could be an effective payment model for California, the Integrated Healthcare Association convened a group of stakeholders (health plans, hospitals, ambulatory surgery centers, physician organizations, and vendors) to develop, through a consensus process, the methods and means of implementing bundled payment. In spite of a high level of enthusiasm and effort, the pilot did not succeed in its goal to implement bundled payment for orthopedic procedures across multiple payers and hospital-physician partners. An evaluation of the pilot documented a number of barriers, such as administrative burden, state regulatory uncertainty, and disagreements about bundle definition and assumption of risk. Ultimately, few contracts were signed, which resulted in insufficient volume to test hypotheses about the impact of bundled payment on quality and costs. Although bundled payment failed to gain a foothold in California, the evaluation provides lessons for future bundled payment initiatives. PMID: 25092835 Ridgely, MS et al. Health Aff. 2014; 33(8): 1345-52.