By Kathleen B. Vega

Bundled payment experts share several strategies to help hospitals prepare for the nuances and challenges of the new payment model.

Pursuing a bundled payment approach to healthcare reimbursement is like climbing a mountain. Not only is it a journey with the potential for significant obstacles, it requires a great deal of planning and resources. Starting the journey without being prepared for the "climb" is not wise as it can prevent success both in the short- and long-term.

So, how can you effectively prepare for bundled payment? We consulted several experts at the Baylor University Medical Center and VHA Inc.-two organizations heavily involved in investigating the benefits and pitfalls of bundled payment-and asked their advice. Following are some of their suggestions.

Ask Yourself "Why Do We Want to Do This?"

In the future, healthcare organizations may be required to engage in bundled payment models, but meeting requirements shouldn't be the only reason your organization pursues this type of approach. "Bundled payments can open up new market opportunities, create stronger working relationships with physicians and other community health partners and, ultimately, create a better experience for patients in terms of consistent, timely, and efficient care," says Peggy Naas, MD, MBA, vice president of physician strategies, VHA Inc. "All healthcare organizations will have their own reasons for pursuing bundled payment, and they should spend time upfront determining what those reasons are. This can help inform the work and result in a payment model that meets the organizations' strategic goals."

Look at Costs to Deliver Care

Not every process or procedure makes sense for a bundled payment. The most realistic targets are ones with quantifiable costs, limited variability, and reliable outcomes. "If a hospital doesn't know how much it costs to deliver care for a particular process or procedure-such as total knee replacement-then it can be very difficult to set an appropriate price for a process or procedure bundle," says Lani Berman, vice president of performance services, VHA Inc. "Hospitals need to first get a handle on the costs of delivering acute care. This may involve tracking several patients and trying to derive a reliable estimate."

Of course, when looking at total costs to deliver, hospitals will also need to quantify costs in non-acute settings because a bundled payment will cover an episode of care that encompasses more than just what is offered in the hospital. "Right now, most hospitals are not set up to gather information about what happens to patients after they leave the acute setting," says Keith Kosel, PhD, MHSA, MBA, vice president, Center for Applied Health Care Studies, VHA IMPERATIV ™, VHA Inc. "Organizations will need to figure out how to gather this information before they can begin to set appropriate prices. This may involve partnering with payers and community providers and agreeing to data exchange."

Reduce Variability Where Possible

Another issue that arises when hospitals consider what processes or procedures to bundle is variability in care. "As you start to map a care pathway-or step-by-step flow-for a particular type of procedure, you often discover a lot of variability between patients," says Jay Mabrey, MD, chief of orthopedic surgery, Baylor University Medical Center, the flagship hospital for Baylor Health Care System. "This can make it difficult to determine a consistent cost profile for a process.

"For example, in determining the total costs for a knee replacement, we have had to figure out where patients go after leaving our hospital. Do they receive physical therapy in a skilled nursing facility or an outpatient physical therapy center? Do they have a home health aide that helps with recovery or do they manage things on their own? For each of these options, there are costs associated with therapy and medication. These all have the potential to play into a bundled payment and must be mapped out."

"Organizations should try to reduce variability in patient care whenever possible," says Russell McCorkle, MBA, director of financial analysis, Health Texas Provider Network, the physician group for Baylor University Medical Center. "This involves seeking out best practices and getting all the physicians who are involved with a procedure on board with the idea of standardization."

Adds Mabrey, "One area we hope to standardize is the process for DVT prophylaxis for joint replacement procedures. This is a treatment to prevent blood clots that can form in the legs after surgery. Right now, some of our surgeons use aspirin while others prefer warfarin. Still others employ non-pharmaceutical options. We are striving to identify the best practice and ensure that all the surgeons who perform joint replacements in our hospital use the same approach. This will not only improve care for our patients but also help with bundled payment."

Determine Crisp, Clear Ways to Identify Patients

Just as certain procedures are not appropriate for bundled payment, not every patient receiving a particular procedure is appropriate for a bundle. For example, a total knee replacement patient who has other comorbidities, such as diabetes or heart disease, may fall outside the parameters of a bundled payment.

"Some patients may fall out of the bundle as care proceeds," says Naas. "For example, if a patient has a complication such as a post-operative hematoma-a pocket of blood that forms at the surgical site after surgery-he or she may need to be excluded from the bundle. Or, all complications after discharge from the hospital may be included. Organizations need to decide in advance who is in and who is out of a bundle-and have reliable ways of identifying patients upfront and monitoring patients as care unfolds."

Seek External Partners

Organizations have to think carefully about which payers they want to work with in a bundled payment arrangement. It's particularly important with payers that there is an alignment of strategies, with both the hospital and the payer wanting to accomplish the same things. If both are looking to enhance care, efficiency, and value, then there is the potential for a good partnership.

"Payers also have to be willing to provide the hospital with the necessary information to manage the bundled payment," says Fabian Polo, PhD, MBA, administrative director of orthopaedics, Baylor University Medical Center. "As mentioned earlier, hospitals will need data about patient care outside the acute setting if they are going to monitor the entire episode of care. Without such data, the hospital will not be able to successfully navigate a bundled payment approach."

In addition to payers, organizations need to identify physicians who are interested in and able to partner in a bundled payment program. "As mentioned before, variability in care is a big issue and physicians must be willing to standardize," says Mabrey. "Also, they must engage in a level of documentation that can demonstrate outcomes effectively. Without this documentation, the hospital has no way of knowing whether the right care was provided and whether payment can be made."

Ask Questions

Bundled payment is a complex, challenging, and continuously evolving process. The key to navigating this effort is to ask questions and seek answers before committing to a specific model. By proceeding cautiously and performing due diligence, you can ensure this payment strategy is not only appropriate but beneficial for your organization.
Access tool: Bundled Payment Preparedness Checklist 

Kathleen B. Vega is a freelance healthcare writer and editor who contributes regularly to HFMA Forums (

Interviewed for this article:
Lani Berman is vice president of performance services, VHA Inc., Irving, Texas   (
Peggy Naas, MD, MBA, is vice president of physician strategies, VHA Inc. (

Keith Kosel, PhD, MHSA, MBA, is vice president, Center for Applied Health Care Studies, VHA IMPERATIV™, VHA Inc. (

Jay Mabrey, MD, is chief of orthopedic surgery, Baylor University Medical Center, Dallas, Texas (

Russell McCorkle is director of financial analysis, Health Texas Provider Network, Dallas, (
Fabian Polo is administrative director of orthopaedics, Baylor University Medical Center (

Publication Date: Wednesday, June 20, 2012