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Study Shows Promise, Problems of Much-Ballyhooed 'Bundled Payment'

By John Reichard, CQ HealthBeat Editor

November 15, 2012 -- Medicare payments "bundled" to spur greater cooperation between hospitals and providers who see patients after they leave the hospital can save money. But getting the reimbursement right could be tricky, a new study suggests.

A bundled payment is one of the forms of payment innovation that policy experts tout as holding promise for playing a part in bending the curve in national health spending.

The study of about 100 hospitals taking part in the "Bundled Payments for Care Improvement Initiative" shows big differences between hospitals in the cost of treatment for patients after they leave the hospital and enter post-acute settings such as home care, skilled nursing or rehab-facility care, said the authors of the study, Robert Mechanic and Christopher Tompkins. Mechanic is a senior fellow at Brandeis University's Heller School for Social Policy and Management; Tompkins is an associate professor there.

"This variation highlights opportunities for hospitals and their partners to improve quality and reduce spending by reaching out to patients after discharge and reconciling medications, scheduling timely primary-care visits, establishing plans for addressing common problems and coordinating with post-acute-care providers," the study said.

The experiment is one of the pilot programs that the Center for Medicare and Medicaid Innovation at the Centers for Medicare and Medicaid Services is funding under the health law (PL 111-148, PL 111-152).

Published in the New England Journal of Medicine, the study said that "hospitals with post-acute-care spending above the median for any particular [treatment episode] spent, on average, about 40 percent more than hospitals with spending below the median. Variation between the lowest-cost and highest-cost hospitals frequently exceeded 100 percent," they wrote.

Hospital readmissions "are one major source of variation,'' the authors found. "For episodes of congestive heart failure, high-cost facilities frequently have readmission rates of approximately 40 percent—10 percentage points higher than low-cost facilities."

Mechanic and Tompkins noted that "hospitals with high post-acute-care spending for total joint replacement tend to use rehabilitation hospitals and skilled-nursing facilities much more frequently than do those with lower spending."

The program tests payments for "treatment episodes" as distinct from conventional Medicare payments in which providers bill for each individual treatment and service involved in caring for a patient.

"Policy analysts have long been interested in encouraging improved efficiency and care coordination by bundling Medicare payments for a range of services delivered during defined episodes of care," the authors wrote. "For example, an episode-based payment for total joint replacement could include the inpatient admission and professional services, plus skilled nursing, home health care and other post-acute-care services for a defined period after discharge."

In October, CMS issued definitions for 48 episodes of care that would be the basis of the program. Other examples include congestive heart failure, chronic obstructive pulmonary disease and pneumonia.

The new forms of payment will not be issued until 2013, but the authors analyzed post-acute spending at the facilities before the start of the pilot.

They warned, however, that a "critical finding of our analysis is that the current design of Medicare's bundled-payment program poses financial risks for participating hospitals." That is because "the relatively small number of patients within each type of episode can lead to substantial year-to-year variation in the severity of illness in, and costs for, patients who require treatment."

They suggested that payments would need to be adjusted in various ways to protect hospitals against expenses involved in treating unusually costly cases.

"CMS has begun to discuss changes to the proposed financial model with applicants," the study said. "If hospitals are confident that the program will financially reward successful clinical performance, many more will be willing to pursue the opportunities for care improvement that this program seeks to encourage."

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