Bundled Payments and Reform:  A Complicated Relationship

Value Based Purchasing (VBP) represents a complicated transition in how hospitals and providers are compensated.  But at the heart of VBP is the idea that payment should be based on value not volume.

Two major examples of VBP are the Medicare based Bundled Payments for Care Improvement (BPCI) initiative and the New York State Medicaid Redesign Teams’ June 2015 A Path Toward Value Based Payment: New York State Road Map.

There are many examinations of how these programs should work and what the expected goals will be.  Health Affairs has an important policy brief on BPCI and the Medicaid Institute at The United Hospital Fund has explored New York’s Road map in a recent paper “Navigating the New York State Value-Based Payment Roadmap”

The specific goal in the New York state road map is very clear: At the end of 5 years 80-90% of managed care payments will use value based payment methodology.  But perhaps a better explanation of the transformation from fee for service to value base methodology is stated in Roadmap as follows:

“In essence, the State’s Medicaid payment reform goals attempt to move away from a situation where increasing the value of the care delivered (preventing avoidable admissions, reducing administrative waste) has a negative impact on the financial sustainability of providers towards a situation where the delivery of high-value care can result in higher margins.”

Both plans try hard to avoid a one size fits all models.  The idea is to set goals, create tools, and then let providers innovate within that framework.

The New York Roadmap, for example states as a guiding principle that VBP should “Be scalable and flexible to allow all providers and communities (regardless of size) to participate, reinforce health system planning and preserve an efficient essential community provider network.”

So what does all this mean for the practicing physician?  A key takeaway  that the end goal of all these VBP-informed plans is to change how care is delivered.  There is a direct link between VBP and how a clinic is set up, what metrics are used to rate success, and how many patients need to been seen.  In short it is hard to think of any policy question that will have a larger effect on a doctors daily life than Value Based Purchasing and its various iterations.   As CMS explains in their BPCI press release:

“Bundling payment for services that patients receive across a single episode of care is one way to encourage doctors, hospitals and other health care providers to work together to better coordinate care for patients, both when they are in the hospital and after they are discharged.”

But the world can look quite different to the average doctor on the ground (struggling with the new ICD-10 and ever increasing demands for more productivity) than to CMS at 50,000 feet.  The difference in views can be startling, leaving the average observer with the impression that there is at best a tenuous link between newly proposed payment schemes designed to lower cost and improve outcomes, and the practical and organizational challenges of delivering care on the frontlines.

One reason for this disconnect is that payment reform is a necessary but insufficient condition for delivery reform.  Payment reform will not automatically solve the problems of delivery that must be addressed by the front line providers.  Too often the financial reform is put in place on the 50,000 foot level without rethinking delivery on the local level.

The failed attempts of Integrated Health Association (IHA) in California to set up a bundled based payment system for orthopedic surgery is one place to look for lessons learned about the disconnect between payment and delivery reform. According to a recent article in Health Affairs  “In spite of a high level of enthusiasm and effort, the pilot did not succeed in its goal to implement bundled payment for orthopedic procedures across multiple payers and hospital-physician partners.”

While there are various specific and local reasons for that failure , we want to draw attention to a conclusion of some of the IHA participants about the failure of this program.

“Bundled payment is generally touted as a promising example of payment innovation — but the true benefit of bundling payments derives from reengineering care delivery, not from combining separately paid line items into a single tab. Bundled payment provides the impetus, but the work of care redesign must follow if the promise of bundled payment is to be realized: reductions in unnecessary care, reductions in readmissions, lower risk and complication rates for patients, and improved patient function and outcomes.”