Health Plans Can Expect Cost Reductions by Bundling Payments, AHRQ Indicates

October 26, 2012 – 1:25 pm | By Todd Leeuwenburgh | 1 comment

Health plans and insurers long have been thinking of ways to compensate providers not for volume of care, but for value of care, as an important tool in curbing runaway health inflation.

Research over the last two decades recently compiled and reviewed by the Agency of Healthcare Research and Quality shows consistent reductions in what providers charge plans after they move to bundled prospective payments for health treatment.

The data is interesting because as health cost growth increasingly burdens health plans and insurers, they more actively support bundled payment systems that pay for care on an episodic basis, often contingent on quality outcomes and practices.

AHRQ’s overview, however, does not suggest how the best ways plans and payers can deploy bundled payments to achieve cost control and quality.

Plans, Payers Call for Payment Reform

Payment reform is frequently cited as one of the most important steps to bringing health costs down for commercial health insurers and employer-sponsored group health plans. Using more bundled payment methods is seen as key to giving employer plans a system in which they will compensate providers only for effective, efficient care. Bundled payments would give plans more reliability in what they are paying, allow them to avoid paying for unnecessary visits and strengthen their hand in avoiding payments for complications and errors, advocates say.

A bundled payment system covers all services needed to get a sick patient well. It creates incentives for providers to streamline care processes and eliminate waste. Many of today’s bundled payment models include quality measures and required hospital protocols to ensure patients are not getting shortchanged on care (in response to incentives to do less), according to this 2009 article by Harold Miller, president and CEO of the Network for Regional Healthcare Development in Pittsburgh, published in Health Affairs.

Outcome-driven reimbursement (of which bundled payment is a part) is widely regarded as important for health payers, and most plan analysts support more bundling and linking payments to quality outcomes.

Data Does Not Portray Blazing Efficiencies

In its report, AHRQ said bundled payment is a promising strategy for reducing health spending. However, effects may not be the same in future programs that differ from those included in this review.

The evidence clearly suggested that the transition from fee-for-service to a bundled payment method was generally associated with a decline in spending of 10 percent or less.

Bundled payment was associated with a decrease in utilization of services included in the bundle … reductions in length of stay or utilization of specific services.

However the impact on quality was uncertain. Some payment changes caused some quality measures to improve, but worsened others. There were inconsistent conclusions about the effect of bundled payment on related quality measures, AHRQ reported.

The agency said the studies did not offer useful guidance on deploying bundled payment systems. For example, most of the studies looked at the effect of bundled payments on a single provider; only four looked at multiple providers. Data was lacking on the impact of bundle design; impacts on quality were not measured.

In order to get more helpful results on the effects of adopting bundled payments, the agency suggests using: (1) standardized measures of quality and cost impacts; (2) better measures for quality outcomes; (3) longer time horizons; and (4) measurements of different impacts on various strata of patients.

That said, the data may be useful for plans that are working closely with a local hospital on streamlining care processes in an effort to curb costs and make them more predictable, AHRQ said in its report.

Bundling Has Risks for Plans Too

In spite of their benefits, bundled methods are susceptible to their own forms of misuse that are dangerous and costly to plans. Those may include underuse of effective services within the bundle, AHRQ said, and the avoidance of high-risk patients. Providers may upcode diagnoses in order to use a higher billing code. Component parts of a diagnosis-related group of services may be billed separately, another source of waste. 

The takeaway for plans and payers is: when implementing a bundled payment system, it is important to see to it that such systems do not result in a decrease in quality of care or provider shifting of utilization to other settings of care. 

AHRQ compiled results from 58 studies, most of which showed costs going down less than 10 percent after an institution moved to bundled payment systems. AHRQ looked at data from public payers that have long adopted such systems for hospitals and nursing homes. It included data on system adoption in facilities in Europe and Asia as well. AHRQ is an agency within the U.S. Department of Health and Human Services.


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  1. By October 30, 2012 « THE MORNING PULSE on October 30, 2012 at 4:17 am

    [...]  Bundled Payments to Health Care Providers Generate Modest Spending Reductions [...]

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