Calif. Hospitals, Insurers Trying Out New Bundled Payment Pricing System

Hospitals and insurers in California and across the country are experimenting with bundled payment pricing in efforts to control spending, improve care coordination and reduce cost variation across facilities, the Los Angeles Times reports.

Under a lump-sum pricing system, facilities negotiate fees for a group of services tied to one procedure, rather than charge patients for each individual service provided during their hospital stay.

Proponents of the system say bundled payments allow physicians and hospitals to align financial arrangements and ensure the best outcome for patients. In addition, such pricing systems may increase transparency, thereby reducing cost variation across hospitals.

Cost Control Questions Remain

Thomas Rosenthal, chief medical officer of the UCLA Hospital System, said that bundled payments are a "step in the right direction" toward reducing overall system costs but that they are not a "panacea."

Although the system could promote cost efficiency for procedures with defined outcomes -- such as joint replacements -- it could create complications for diagnoses that demand ongoing care, such as diabetes.

Some critics contend that bundling payments will cause health care costs and insurance premiums to rise by increasing the market clout of hospitals and providers as they negotiate prices.

Furthermore, lump-sum pricing might not impede other cost drivers, including overutilization and the rising expenses of prescription medications, the Times reports.

Pilot Program on Tap

To quantify the benefits and identify the drawbacks of a bundled pricing system, a handful of California hospitals and insurers are planning to launch a bundled payment program for hip and knee replacement procedures in August. So far, Aetna, Blue Shield of California, CIGNA and HealthNet have agreed to take part in the program.

Currently, four states -- Colorado, New Mexico, Oklahoma and Texas -- are participating in CMS' bundled payment pilot project. The new health reform law plans to initiate similar programs focusing on surgical procedures for the elderly and indigent (Helfand, Los Angeles Times, 4/24).