New Payment Method May Help Curb Costs, Improve Care

Weslie Kary says it’s like buying a new car.

You don’t pay for a wheel, and then pay for the windshield, and then pay for a back bumper. You pay once, and you get a car.

That’s the way it should be for hip replacements and other complicated types of health treatment, Kary said.

Kary, director of the Medical Technology Program at the Integrated Healthcare Association in Oakland, is in charge of a pilot program involving a new type of reimbursement model called payment bundling. The program is funded with a grant from the California HealthCare Foundation, which publishes California Healthline.

Kary said, “It’s only a piece of the puzzle, but conceivably as a way of aligning incentives, it has some pretty significant potential value.”

That potential value could be realized in lower costs and better patient outcomes, Kary said, a combination of benefits that is catnip to those working on health care reform. The national health reform bill requires a detailed plan be developed to reform payments for post-acute services, and that means policymakers will take a close look at payment bundling.

How Bundling Works

Under the current system, each part of the treatment process for some procedures, like knee and hip replacements, is billed.

“The patient comes to a doctor’s office for the pre-surgery appointments, then there’s the surgery itself, the post-operative follow-up with several providers, the physical therapy appointments,” Patrick Johnston, president of the California Association of Health Plans, said. “The payer of all of that, be it patient or government or health plan, pays for each incidence of treatment. That might not be the most efficient model.”

The payment-bundling model looks at the overall procedure and sets an accurate price for that procedure. The model allows care providers to use their time with patients more efficiently and to spend less time on billing paperwork, according to Johnston.

“It’s kind of a tweener,” he said, “between fee-for-service and capitation. It’s a tool. It’s not the solution at the end of the rainbow, but it could improve efficiency of care.”

State Showing Interest

The promise of bundling payments strongly appeals to Toby Douglas, chief deputy director of Health Care Policy at the California Department of Health Care Services.

“As a department, we’re very interested in providing the right incentives, and interested in a system that drives cost effectiveness and provides stronger outcomes,” Douglas said.

He hopes bundling can be part of the health care reform effort, along with establishment of the state health benefits exchange. Payment bundling has been touted as a good model for cardiac surgeries, hip and knee replacements and other complicated procedures. But Douglas has something different in mind.

“We’re starting by looking at bundling of services for special needs children — since they have complicated, chronic problems that require an array of services. To provide payment bundling around that care could be a better and more effective way of delivering health care,” Douglas said.

The idea, he said, is to get everyone in the special needs arena, including providers, patients and insurers, to buy into the concept and work out the details of payment and risk management. The California Children’s Services Program provides care for children with chronic health conditions such as cystic fibrosis and spina bifida.

“We’re working with a coalition of hospitals, children’s specialists and providers to build a network,” Douglas said. “I don’t think it’s many years and years, but it will probably be a couple of years before we’re there.”

If the details can be worked out around care for special needs children, Douglas expects the concept will be used for other procedures and other special-needs children enrolled in Medi-Cal.

California’s Pilot Project

The pilot project launched by the Integrated Healthcare Association is trying to pin down some of those details.

It focuses on knee and hip replacement procedures in a commercial PPO patient population at 10 health care systems in Southern California. IHA has spent the past nine months defining what would be included in a bundled payment, and the next step is to divvy up the overall payment to individual health care providers in an equitable way. The biggest hurdle, project director Kary said, is ironing out the details of this new payment system to everyone’s satisfaction and to the point when contracts can be signed.

“The world runs on systems,” Kary said, “and the world is not currently set up to pay this way.”

California poses an additional administrative challenge, she said, because state law prohibits hospitals from directly employing physicians. And California, she said, has a much more advanced and entrenched capitation system than other states, which means it could be more difficult to replace part of it.

“Bundled payments doesn’t take the place of capitation, but it does have a role in the HMO arena,” she said.  “On the other hand, the level of integration is much higher in California, and that’s a plus. They have a higher understanding to think about these new payment mechanisms.”

Kary expects to go live with the pilot program — that is, with contracts signed — by late summer.

“Some people see this as some kind of sea change in the way medicine is delivered,” she said, “and we’re just not there.

“We’re trying a small population of patients with limited procedures, then we’ll see where it goes. Eventually we’d like to expand to different populations, in other conditions such as cardiac procedures. That’s as far ahead as I’m thinking,” Kary said.

Other Opportunities for Bundling

The most common target for payment bundling so far has been knee and hip replacements and cardiac procedures. It also has been cited as a possible payment method for maternity, chronic diseases and cataract surgery.

There is concern in the physician community that doctors might end up on the short end of payment bundling.  Douglas of the DCHS pointed out that there is concern it could lead to rationing of care.

“It definitely has potential,” Douglas said, “but as everything that has potential, there are also potential drawbacks.”

In the IHA pilot project, Kary said that building up trust in the system is an ongoing and complex task and is the key to whether payment bundling succeeds. If this pilot project does work in its remaining nine months, the next steps will present a new set of challenges, she added.

“Payment bundling can be done in so many different ways. No one knows how many ways this process can work. The administrative solutions that we can use in a pilot program are not necessarily going to work on larger systems. So the next step will be: How do we bring it to scale?” Kary said.

Related Topics

Health Care Costs Insight Insurance Medi-Cal The Health Law