How Obamacare Is Already Encouraging Cost-Saving Innovations In Health Care Payment And Delivery

The Affordable Care Act gave HHS the authority to test innovative reforms to the healthcare payment and delivery systems with the goal of improving quality of care while reducing costs — and the Administration is beginning to take important steps in that direction.

Last week, the Centers for Medicare and Medicaid Services (CMS) announced that over 450 health care organizations will participate in the Bundled Payments for Care Improvement Initiative. The new initiative tests a promising model that aims to drive down costs throughout the health system by creating financial incentives for medical providers to provide more coordinated, higher quality care to their patients.

Bundling payments is an alternative to Medicare’s current fee-for-service financing system, in which providers are paid separately for each individual service rendered in a single course of treatment. For example, under the current system, Medicare would make a separate payment for each of the following during a cardiac patient’s stay in the hospital:

— Payment to the hospital to cover room and board, nursing services, prescription drugs, other supplies and equipment, and all diagnostic and therapeutic services during the hospital stay
— Separate payments for the services provided by the physicians who cared for the patient during the stay.

If the patient is then transferred to a nursing home, Medicare might make the following additional payments:

— A daily payment amount to the nursing facility to cover room and board, nursing services, prescription drugs, and rehabilitation services during his nursing home stay
— Payment to the ambulance company for transporting the patient to and from his cardiologist’s office
–Payment to the cardiologist for the visit during the nursing home stay

And even after the patient goes home, Medicare could continue to make separate payments:

— Payment to the home health agency for visits after the patient returns home
— Payment for the prescription pain reliever after the patient returns home

This fragmented payment system leads to a fragmented delivery system. Medical providers have every financial incentive to provide high volume of services, whether or not those services are necessary or lead to better patient outcomes, and they don’t have any incentives to coordinate with other providers to deliver efficient and coordinated patient care. That means providers often operate with minimal communication — which leads to waste, inefficiency, and diminished quality of care for their patients.

By contrast, bundled payments financially reward teams of providers that work together to meet cost and quality metrics for specific procedures or courses of treatment, creating the potential to dramatically improve the quality of care patients receive while also driving down costs throughout the health care system. If providers deliver all services within the bundled “episode” of care for less than the bundled payment amount, and meet quality targets in the process, they are allowed to keep the remainder as profit. Health care providers receiving bundled payments can assume varying amounts of financial risk and can be responsible for any costs of care that exceed the amount of the bundle.

There’s evidence that bundled payments are popular among consumers. Because bundled payments define an episode of care, they offer patients a higher degree of transparency in relation to their medical care, both in terms of the cost and the course of treatment. A recent survey polling over 1,000 U.S. consumers on their interest in bundled healthcare packages found that 78 percent of respondents thought the concept was appealing. According to the survey, patients thought the ability to provide input in their care and access coordinated care was one of the most appealing aspects of bundled healthcare packages.

More than 450 public and private organizations will participate in the CMS initiative, which tests four different models for bundling. CMS had identified 48 episodes that participants will be able to choose from in piloting bundles. Piloting bundled payments across such a broad swath of medical providers and with such a wide variety of episodes should offer important information about how bundled payments can most effectively be leveraged in the long-term effort to drive down health care costs and improve the quality of medical care in the United States. The Center for American Progress has proposed accelerating the use of bundled payments in Medicare and Medicaid as part of its Senior Protection Plan, a package of proposals to achieve nearly 400 billion dollars in federal health care savings over ten years.

Our guest blogger is Lindsay Rosenthal, Special Assistant for Health Policy and Women’s Health and Rights at the Center for American Progress.