The Benefits of Bundled Payments

This article originally appeared in Source Magazine’s Q4 2012 Issue.

If you’re a supply chain leader and you can help implement a bundled payment program, it’s hard to find a reason not to do it.

A gain-sharing program that is focused on creating mechanisms to affect physician preference and improve alignment can make a huge impact. By offering a financial incentive from the hospital to the physician, the program can help negate the effect of vendor-driven device decisions.

As part of the Patient Protection and Affordable Care Act (PPACA), last year the Centers for Medicare and Medicaid Services (CMS) presented the “Bundled Payments for Care Improvement” initiative. The program creates a series of positive incentives that encourage provider innovation in cost reduction, clinical integration and care management.

The program has four versions, called models. The models function by taking a discount and focusing on creating cost efficiencies. Gains can be shared among providers, but losses are limited by a fixed discount and normal billing. The focus of the program is to create cost efficiencies through alignment. In past demonstration programs, the outcomes have been very good. Some facilities reduced episode costs by as much as 70 percent.

The first three bundled payment models are retrospective payment arrangements where providers are paid a discounted Medicare fee-for-service rate. Model 4 is based on prospective payments. Providers may choose to implement more than one model.

Providers apply for participation in the program by doing analysis and defining “care-episodes,” which can be virtually any high-volume inpatient episode.

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