Physician Compensation Supply of Medical Services

The problem with bundled payments

Bundled payments sound like a great idea for improving efficiency and in the short-run they are. Bundled payments involve paying a fixed fee for the treatment of a specific patient over a specific time period.  For instance, CMS have considered using a singled bundled payment to reimburse providers for both acute and post-acute care providers.  This approach gives providers the incentive to provide care in a more cost effective setting. On the other hand, bundled payment–like capitation payment–incentivizes providers to offer fewer services or lower cost services to patients.

Whatever the merits and and demerits of bundled payments are in the short run, the key issue is how to price the bundle in the long run. Over time, the price of services will change and could become more or less expensive.  Thus, payers using bundled payments must have an accurate source for tracking costs over time.

More importantly the services provided in the bundle may change over time.  NPC gives one example:

For example, a payment bundle for Hepatitis C treatment in 2014 would have needed to evolve as new oral therapies such as Sovaldi and Harvoni became available. Although these drugs have been shown to be cost effective in the long term, their use would likely have been discouraged by an outdated Hepatitis C bundle.

Although Medicare updates its Outpatient Prospective Payment System (OPPS) annually, providers may have little incentive to use innovative treatments unless bundle payments are sufficient to reimburse providers for this cost.

Does Medicare or large commercial insurers have sufficient clinical and market expertise to update thousands of treatments to ensure patients receive high quality care?  Will the bundles be sufficiently risk adjusted or stratified so that providers are not incentivized to avoid the sickest patients?  On both accounts, the answer is likely no.  Thus, bundled payments can be successful in the short-run, but the long-run issues of updating the services and prices included in the bundle make this approach extremely problematic.

1 Comment

  1. Joe Flower has a book called Getting What We Pay For, in which he discusses all sides of the health care issues. He states the reasons to why health care on all fronts does not have to cost so much. What you said about Bundled Payments being a quick fix, it’s the long term we all need to look at, this current system is way too expensive and we have no choice in any of it.

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