Tori ManisBundled payment has been a hot topic this fall. With all the conferences, webinars, and strategic partnership announcements from providers, payers, and employers, it seems this initiative has but one trajectory: to grow in size and scope. Key considerations for many healthcare organizations are whether to pursue bundled payments or expand involvement in this payment approach, and what steps and strategies are required to be financially successful in implementing bundled payments.

Low Entry Point Drives Rapid Adoption

The rapid rate of growth and adoption of bundled payment programs is evident across the nation’s providers, payers, and geographies across the country, and the economic opportunity is a key factor in program participation. The Medicare Bundled Payments for Care Improvement (BPCI) initiative alone saw about 6,500 applicants in the second round of Phase One, in 2014, compared with just over 2,500 applicants in 2013. Arkansas, Ohio, and Tennessee are driving Medicaid bundled payment programs in their states, and additional states are planning to implement similar programs in the coming years. Employers, including Walmart, Boeing, Lowe’s, Kroger, and PepsiCo, are evaluating bundled payment models for cardiovascular and orthopedics episodes. And commercial bundled payment partnerships are growing, with plans such as Blue Cross/Blue Shield, Cigna, and Aetna collaborating with regional providers to develop and implement innovative payment models.

Significant work is currently underway to develop episodes in outpatient services, cancer treatments, treatment of chronic conditions, behavioral health services, and post-acute care, and the use of such episodes will only grow in scope and implementation. With the types of stakeholders participating and the scope of service lines expanding, organization many find this a good time to explore the overall economics of participating in a bundled payment program.

Why Now?

Bundled payment models offer participants financial, clinical, and strategic partnership opportunities. Following the money, the economic benefits of implementing bundled payments can be sizeable, if organizations engage, analyze, and implement successfully. The effects of bundled payments that produce these benefits include:

  • Driving organizations and their affiliated physicians to decrease the overall cost of care through the reduction of waste and clinical variation
  • Requiring organizations to evaluate and improve their operational performance with a focus on reduced readmissions and length-of-stay (LOS) through standardized care protocols
  • Providing an opportunity for gainsharing with providers and/or physicians
  • Introducing organizations to risk-based contracts, which are proliferating in popularity across health plans and employers

Early Tests Prove Positive

Based on our experience with healthcare organizations across the country, ranging from regional health systems to community hospitals to post-acute providers, the evidence to date suggests that a positive ROI from implementing a bundled payment program is quite achievable—as long as the organizations makes the appropriate significant organizational efforts need to redesign care protocols, engage and align with physicians, foster cultural transformation, and promote data and performance transparency.

Based on early 2013-14 results from various models implemented throughout the country, we have seen average provider savings per case range from $1,200 to $2,700, as indicated in the following case examples:


Show Me the Money!

Savings in bundled payments can derive primarily from reductions in the following:

  • LOS
  • Total cost of care
  • Supply costs
  • Readmissions
  • Diagnostic testing
  • Utilization of skilled nursing facilities, long-term acute care hospitals, and inpatient rehabilitation facilities

Other internal cost savings using bundled payment as a lever may be generated through improved operational efficiencies. Such savings include improved supply chain logistics, lower staffing needs, enhanced discharge planning, increased standardization of care protocols, and more effective use of the appropriate clinician and care setting. Although a bundled payment initiative may lead to reductions in volume and utilization, bundled payment also presents an opportunity for organizations to gain experience with risk-based contracts on a limited scale. By participating in a bundled payment initiative, organizations can compare current performance with their own three-year historical baseline pricing data and develop the means to maintain savings generated from improved care delivery, thereby keeping revenue stable despite the volume reductions.

In addition to enhanced physician engagement, increased transparency in analytics, and strengthened regional partnerships, bundled payments represent an opportunity for healthcare organizations to improve their financial performance. If your organization is not currently involved in bundled payments, now is the time to evaluate and consider participating in this rapidly expanding payment approach.

Tori Manis, MBA, is a manager with The Camden Group, Chicago.