The idea of bundled payments – paying a set dollar amount for an episode of care – is not new. In the early 1990′s, CMS sponsored a demonstration project. It was successful at reducing costs. Since then several other projects have demonstrated the same results.
The accounting is pretty straight-forward. CMS calculates an expected cost for an episode of care, around a specific condition or surgery. They negotiate a specified time period that defines the episode, and then agree to a payment amount that is a few percentage points below the expected cost for that episode. If the actual cost for an episode is less than the negotiated price, the provider pockets the difference; if the cost exceeds the negotiated price, the provider eats the loss. Providers assume the risk, not CMS. In this scenario, CMS wins because they realize a cost savings, and, if the provider is sophisticated, understands the drivers of cost, and works to reduce them, they can do well. Patient’s win because costs are reduced, quality is maintained, and providers stay in business.
While these demonstration projects have been win-wins, before they could be spread nation-wide, CMS had to seek congressional approval. This is where things became difficult and lobbyists realized their opportunities.
In healthcare, every dollar of cost reduction is someone’s paycheck. I don’t think that’s absolutely true, but the beneficiaries of an inefficient, high cost system definitely know a threat when they see one. They made certain that these demonstration projects never received congressional approval. For the most part these projects have sat gathering dust on a shelf for the past twenty years.
The Patient Portability and Accountable Care Act changed this situation. CMS was granted permission to establish an innovation center and to spread changes from pilot programs to a national level without congressional approval. Therefore, when projects show success, we can expect rapid and nationwide implementation.
Many experts believe that bundled payments, now in the early stages of piloting, will be successful. Some expect rapid, nationwide implementation of this payment model as early as 2015.
If that happens, everything changes.
Related Reading: The founder of LeapFrog’s perspective on payment reform.