Mousetrap with stacks of money on top of it

Healthcare payment reform is inching forward at glacial speed largely because risk-based reimbursement is so challenging. Even the bundled payment model—sometimes called the gateway to payment reform—is still in the early stages. In this model, a provider receives one payment for all services in an episode of care and is at risk for a loss if costs are too high. Adoption of this model is likely to pick up in 2016 because of new federal initiatives, state Medicaid programs, and commercial contracts between innovative payers and providers.

Here’s an overview of current bundled payment action and predictions for each segment:

Federal government: The Centers for Medicare & Medicaid Services will start the Comprehensive Care for Joint Replacement bundled-payment program for knee and hip replacements on April 1, 2016. In 67 areas of the country, bundled payments will be mandatory for knee and hip replacements received by fee-for-service Medicare patients. Hospitals that provide these procedures will be held accountable for the quality and cost of care from surgery through 90 days after discharge. There is no financial risk for providers in the first year and a gradual transition to greater risk in subsequent years.

Hospitals will be responsible for holding down costs while many services are provided after patients leave the hospital by skilled-nursing facilities, inpatient rehabilitation facilities, long-term-care hospitals, and home health agencies.  Because of this dynamic, we expect the CJR program will lead to stronger ties between health systems and post-acute providers, including affiliations, acquisitions, and partnerships. In the first phase of the federal Bundled Payments for Care Improvement initiative, more than half of expenditures for joint replacements are for post-acute care.  The BPCI has moved into a second, risk-bearing phase, with 1,574 participants as of January 1, 2016, according to CMS.

 State governments: A few states are testing bundled payments in Medicaid programs, and this segment is poised for growth because states are under direct pressure from taxpayers to hold down Medicaid costs.  Arkansas Medicaid launched bundled pricing for five episodes of care in 2012 and plans to have 90 episodes by the end of 2016.  Ohio and Tennessee are also likely to expand their bundled payment Medicaid programs in 2016. Other states are laying the groundwork for value-based Medicaid payments. For example, a rebidding process for Medicaid MCOs in Pennsylvania will require an increase in the percentage of value-based contracts with providers to 30 percent of funds received from the state within three years.

Commercial contracts: Bundled payments are becoming more common in commercial contracts between innovative payers and providers. Examples include UW Health and Unity Health Insurance in Madison, Wisconsin; Duke University Health System and Blue Cross Blue Shield of North Carolina; and Hoag Orthopedic Institute in Irvine, California with both Aetna and Blue Shield of California. Bundled payment pioneer Horizon Blue Cross Blue Shield of New Jersey has announced positive results from its Episodes of Care Program. Horizon reviewed 2014 claims data for members receiving care from practices participating in this program and compared the results with patients receiving care for the same procedures from non-participating practices. Results included 100% fewer hospital readmissions for knee arthroscopy, 37% fewer re-admissions for hip replacements, 22% fewer re-admissions for knee replacements, and a 32% reduction in unnecessary caesarian sections. Continued cost pressures and successes like this will help build the case for more bundled payments in commercial contracts.


View the rest of the 2016 Targeted Insights series.

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