Reform Moves Stir Talk of Bundled Payments

There’s a widespread belief among healthcare providers that we’re heading for Medicare payment changes—and perhaps reimbursement changes in the broader system—that will reward collaboration between hospitals and physicians. While the Senate Finance Committee—the epicenter of national reform legislation—has only suggested bundling of hospital and post-acute care payments, there are signs that bundled payments may also encompass physicians who do procedures and treat chronic conditions.

In President Obama’s speech to the AMA on Monday, he specifically mentioned this kind of bundling: “We need to bundle payments so you aren’t paid for every single treatment you offer a patient with a chronic condition like diabetes, but instead are paid for how you treat the overall disease. We need to create incentives for physicians to team up – because we know that when that happens, it results in a healthier patient. We need to give doctors bonuses for good health outcomes – so that we are not promoting just more treatment, but better care.”

Another piece of evidence comes from the Medicare Payment Advisory Commission, which may be given the responsibility for determining how Medicare providers are reimbursed, with only minimal oversight from Congress. In its annual report to Congress, delivered this month, MedPAC devotes a chapter to accountable care organizations (ACOs), which it says “have the potential to promote care coordination, increase quality, and lower cost growth.” MedPAC defines an ACO as an entity that includes primary-care physicians, specialists, and at least one hospital.

Under this model, “If the ACO achieves both quality and cost targets, its members could receive a bonus. If it fails to meet both quality and cost targets, its members could face lower Medicare payments.”

Meanwhile, a group of healthcare CEOs went to Washington and issued a white paper calling for a new payment system that would reward high-quality care, preferably delivered by integrated delivery systems. Among their proposals: replace Medicare fee-for-service reimbursement with bundled payments tied to outcomes, comprehensive services, and shared risk. Among the organizations these CEOs represent are Group Health Cooperative, Blue Shield of California, Catholic Healthcare West, Merck & Co., Denver Health, Virginia Mason Medical Center, University of Wisconsin Hospital and Clinics, and Ascension Health.

At the same time, the Healthcare Financial Management Association was releasing a white paper on healthcare payment reform at its Annual National Institute in Seattle. It said that hospitals should focus on integration with physicians, as well as quality improvement and prevention. “All signs point to changes in payment streams that will provide the incentives for hospitals and other providers to collaborate to reduce costs and improve quality,” the HFMA white paper said.

All of this reminds some observers of the rapid formation of integrated delivery systems during the ‘90s, when many hospitals and physicians were circling the wagons to fend off the expected onslaught of capitated managed care plans. That never materialized in most places, but many systems retained all or some of their employed primary-care physicians. Now, partly in expectation of healthcare reform, they’re also stepping up their hiring of specialists.

“The handwriting is on the wall,” Bill Jessee, MD, president and CEO of the Medical Group Management Association, tells BNET. “The push is going to be towards more integration of physicians, hospitals, home health, and other services. And Medicare or a private insurer may put the provider at risk, instead of the insurer being at risk. It’s not explicit, but it’s implicit in a lot of the reform discussions that that’s the direction they’d like to move. The bundled payment demonstrations are a manifestation of that.”

From the viewpoint of improving quality and reducing the fragmentation of health care, the growth of integrated delivery systems is a good sign—and a change that will be necessary if providers are given budgets. What’s unclear is whether hospitals or physicians are going to run these systems. At the moment, it seems like hospitals are gaining the upper hand.