Bundled Payment for Healthcare Taking Off

In today's evolving healthcare market, hospitals are under increasing pressure to provide better quality of care at lower cost. The fee-for-service payment system that's been in place for years rewards volume, not value. It unintentionally encourages the inefficient use of resources, thereby driving up medical costs because it doesn't connect payment to outcomes. As commercial and public payers attempt to get healthcare costs under control, there is growing recognition that we need new payment models. One approach gaining momentum is bundled pricing.

It was previously reported that over 500 organizations will participate in CMS's bundled payment initiative within the next year. In addition, we know that many commercial payers and providers are collaborating to implement bundled payment programs. As we predicted, bundled pricing is here to stay.

But not all bundled pricing is created equal. There are many definitions. Some approaches are more likely to work than others; and some are a really bad idea, likely to repeat the problems of HMOs in the 1990s. Until accountability for outcomes is tied to payment and the market becomes more transparent, we won't see the changes that are needed within the healthcare system.

One concern is that as hospitals quickly move to adopt bundled pricing initiatives, including those sponsored by CMS, these programs will only focus on lowering costs without delivering better outcomes. Effective bundled payments must deliver a "standardized," evidence-based set of services for a fixed price with specific quality guarantees. This approach will force care providers to align their efforts to manage underlying cost drivers and focus on outcomes.

Healthcare providers must realize that bundled pricing requires more than combining relevant procedural codes and offering services at a reduced price. Implementing bundled pricing requires significant preparation and organizational change. When designing a bundled payment model, measures must be in place to track variability in cost and quality across the continuum of care. The model also requires an environment where clinicians and administrators have established a partnership involving strong communication and coordination. Hospitals that fail to take these steps will have a difficult road ahead of them as stakeholders across the industry demand more value for their healthcare dollar.

As I discuss in Healthcare at a Turning Point, a well-structured bundled pricing model that delivers defined outcomes at a specific price will better meet the demands of both payers and patients. It will ensure that we achieve the ultimate objective - better health outcomes at lower cost. Keeping this objective in mind, how are you seeing the changes described above playing out in your area of work? Please share your thoughts.

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