December 15 2018

Commercial Bundles: Barriers and Opportunities

Image: Bundled Payments
Episodes of Care Series: We talk a lot about how to be successful in bundled payment models on this blog. But in the coming weeks, we’re going back to basics. We’ll be talking about the mechanics of bundled payments, the theories behind them, and the challenges and opportunities they present to organizations engaging in the shift to value. This week we’re covering an advanced form of bundled payments, Commercial Bundles. To start from the beginning of the series, read our first post.

Bundled payments have been around for many years but have recently become more widely known through CMS’s government bundles such as BPCI Advanced and the CJR program. In 2013, bundled payments accounted for only about 1.3% of commercial payments; today that number is estimated at less than 2%. In 2016, 29% of all healthcare payments were processed through some version of a bundled payment model. Despite the slow adoption of bundled payments at an industry level, commercial payers are starting to explore bundled payment arrangements as a means to save money and improve care within their own networks and on their own terms – Commercial Bundles.

Commercial bundles are attractive to payers because they present a low-risk opportunity to reduce variance in claims costs and improve care quality. Providers also find commercial bundles attractive as they are able to work more collaboratively with payers, share in the healthcare cost savings, and provide better-coordinated care to their patients.

When first experimenting, payers are likely to follow CMS retrospective bundle definitions, in part due to provider demand to simplify the administration of bundles. That said, entrepreneurial physician groups and health systems may well reach out to local employers to offer fixed-price-prospective bundles. In retrospective models, the target price is calculated in advance and then reconciled against fee-for-service claims at the end of the episode of care. Prospective payment models pay a fixed price for services that are covered under the bundle before services are rendered; the fee is paid to a single payee who distributes to all parties on the care team. While the structure is theoretically better for advanced risk adjustment on a patient-by-patient basis, the industry overall may be lacking the predictive analytics and granular processing capabilities needed to administer and execute prospective bundles successfully.

In order to effectively design and implement a bundle, payers and providers need to gather richer clinical, cost, and quality data, boost their analytics capabilities and refine their risk-adjustment methodology. There is much emphasis on the use of patient-level risk scoring and real-time risk adjustment to validate performance and identify opportunities for improvement, however many organizations lack the statistical capabilities to do so in a cost and time efficient manner.

Early adopters have begun to address some of the practical challenges to scaling bundled payments by investing in technology, sharing data, increasing the number of eligible patients for a bundle, extending the bundle-window to 90 days post-acute, and adding additional episodes.

There’s still much to learn on this new healthcare frontier, but it’s one that stands to reward those payers who lead the charge and make strong considerations for these elements in the design and strategy of their bundled payment programs. We may see this trend driven even further by competition for volume if attractive bundles become the means of differentiation in a given market.

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