Health Care Reform Puts Payment Bundling to the Test

Success Demands Primary Care Participation, Says Expert

February 21, 2011 05:30 pm Sheri Porter

A primary goal of the Patient Protection and Affordable Care Act is to rein in U.S. health care expenditures without sacrificing quality. To meet that goal, one provision of the act aims to test a new payment methodology by creating integrated care delivery systems that include hospitals, physicians, and other health care service providers and suppliers.

According to one expert in health care law, the success of any such payment strategy absolutely depends on the involvement -- and fair treatment -- of primary care physicians.

As described in Section 3023 of the Affordable Care Act( (page 281 of 906-page PDF), the HHS secretary "shall establish a pilot program for integrated care during an episode of care provided to an applicable beneficiary around a hospitalization in order to improve the coordination, quality and efficiency of health care services."

In short, the pilot will assess whether Medicare can save money while maintaining quality of care by providing one single payment for an episode of care, with that payment then distributed to all the individual providers of services and goods that were involved in that episode of care.

The payment bundling pilot program is to be established no later than Jan. 1, 2013, and will run for a period of five years. No later than Jan. 1, 2016, the HHS secretary shall submit a plan to implement an expansion of the pilot program if doing so will reduce spending and improve -- or not reduce -- the quality of patient care.

Program Definitions and Details

Many of the rules and regulations guiding implementation of the pilot program have yet to be written, but the basic tenets of the program are laid out in the legislation.

The provision defines an "applicable beneficiary" as an individual who is entitled to Medicare Part A benefits and enrolled in Part B. In addition, the beneficiary must be admitted to a hospital for a so-called applicable condition. For the purposes of the pilot, HHS will select 10 applicable conditions, ensuring, among other things, that

  • the 10 conditions chosen include a mix of chronic and acute medical conditions,
  • the conditions chosen involve both surgical and medical conditions,
  • each condition selected offers an opportunity for health care professionals and service suppliers to improve quality and reduce total expenditures, and
  • each condition is considered high-volume and entails high post-acute care expenditures.

The law specifies that an episode of care encompasses

  • the three days prior to the patient's admission to the hospital,
  • the patient's length of stay in the hospital, and
  • the 30 days following the patient's hospital discharge.

A group of health care professionals and service providers -- "including a hospital, a physician group, a skilled nursing facility and a home health agency" -- will provide patient care during the episodes of care. Although the participation requirements for these groups, or "entities," have not yet been developed, HHS is required to ensure that Medicare patients involved in the pilot program have a choice of providers and services.

Paying for Quality

Under the payment bundling pilot, a single payment will be made to each integrated care entity for all services provided during an episode of care. That payment cannot be more than Medicare would pay for those services outside of the pilot program.

AAFP Perspective on Payment Bundling

AAFP President Roland Goertz, M.D., M.B.A., of Waco, Texas, told AAFP News Now that it's important for the Academy to closely monitor policy discussions on all payment methodologies.

"The Academy has not taken a stand on any specific type of payment, and we are hindered, to a certain extent, by antitrust issues from getting into very detailed discussions about payment models," said Goertz.

Even so, Goertz said the Academy "still stands behind the belief that any eventual payment system has to be a blended, three-part model that includes the best of the fee-for-service model, a patient-management or patient-coordination fee, and a quality payment of some sort."

Even though a bundled payment makes a nice neat package for the payer, "it puts an awful lot of pressure on the governing body of the entity that is responsible for seeing that all the health care pieces are delivered and that all of the health care professionals are appropriately paid," said Goertz.

"If bundled payments advance, family physicians need to have a very explicit and clear understanding of the amount of their piece of that bundled payment," he added.

According to Bruce Bagley, M.D., the Academy's medical director of quality improvement, a bundled payment "works great for a broken leg, a fractured hip, or an episode of congestive heart failure that requires hospitalization. There's a very specific start of the episode, and it's easy to ascribe medical services connected to that episode."

"However, most people, especially those enrolled in Medicare, don't have just one thing," he noted, "and when you try to apply bundled payment methodology to a patient with multiple chronic illnesses, it just doesn't work well."

The bundled payment will be comprehensive in that it will cover the costs of the health care services provided during an episode of care. In addition, the payment will include remuneration for such services as care coordination, medication reconciliation, discharge planning, transitional care services and other patient-centered activities, as determined by HHS.

The agency also will establish procedures to cover payment for post-acute care services that may be required after the last day of an episode of care.

To determine the program's effectiveness, the provision calls for the HHS secretary to establish quality measures capable of assessing such factors as

  • patients' functional status improvement,
  • reductions in the rates of avoidable hospital readmissions,
  • rates of discharge to the community,
  • rates of admission to an emergency room after a hospitalization,
  • incidence of health care-acquired infection, and
  • efficiency measures.

HHS also will measure patients' perception of the care they received.

The pilot will be evaluated based on improvements in these quality measures, other aspects of patients' health outcomes and patients' access to care, as well as on the program's ability to reduce spending.

Use Your Bargaining Power

Jon Henderson, J.D., is an attorney in the Dallas office of the international law firm K&L Gates. His professional focus includes health care law, and he counts physician groups among his clients.

As co-author of an article titled "Two New Cost Containment Measures: Medicare Shared Savings Program and National Pilot Program on Payment Bundling" that was published on the firm's website in September 2010, Henderson has specifically examined cost-containment strategies within the health care industry.

In an interview with AAFP News Now, Henderson stressed that every bundled payment relationship has two parts -- clinical management and financial management. "It's a matter of getting the metrics right for ensuring payment for what physicians contribute to the patient's care and then having the physicians' financial expectations met in that business deal," he said.

Regarding HHS' payment bundling pilot, Henderson said, "There will have to be some part of the regulations that will make things fair for primary care physicians or it will fail because those physicians won't participate."

"Primary care is where the magic happens in health care because it results in better patient care and better patient outcomes," said Henderson. "One of the major themes of health care reform is lowering costs, and that means favoring health care delivered by primary care physicians.

"Most everyone would agree that a hospital is generally the most expensive setting in which to deliver health care," he added.

Henderson encouraged primary care physicians to take advantage of their "marketplace leverage" when it comes to negotiating their terms in a bundled payment environment.

"If you are critical to the success of (payment bundling strategies) because the rules say 'we have to have primary care on the front and back end,' then you have a strong voice at the table," he said.