Bundled Payments for Ambulatory Surgery Have the Potential to Foster Increased Transparency, Improved Outcomes, Lower Costs, and Increased Capacity for Health Care Systems

As featured in Health Economics & Outcome Research: Open Access

By Thomas Wilson and Sohrab Gollogly

Bundled payments are a new payment methodology that is becoming increasingly popular in the United States. Bundled payments are designed to combine all of the costs associated with the delivery of surgical services, including the professional fees of the surgeon, assistant(s), anesthesiologists, and the facility fees of the hospital or ambulatory surgery center into a single bill.

This method of reimbursing facilities and healthcare professionals has been utilized by the Federal Government and private insurance carriers in the United States and represents a significant departure from traditional fee for service payment systems.

Bundled payments have the potential to decrease health care costs, improve transparency, improve outcomes, and increase the capacity of the health care system by creating an open market for surgical services.

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Study: Growing Number of Employed Physicians Driving Higher Medicare Costs

By Scott Leggett

  • Forty-nine percent increase in employed physicians translates to $2.7 billion increase in costs.
  • “The cost per patient absolutely increases” in healthcare settings where the physician is employed by a hospital system.
  • Independent physicians working in unaffiliated outpatient centers are more efficient.
  • Cost increases are shifting attention to the benefits of outpatient surgery centers combined with bundled payment models.

Medicare costs for certain common procedures have risen sharply as hospitals employ more physicians, according to new research observers say highlights the benefits of doctors working independently in outpatient centers unaffiliated with large healthcare systems.

The study, commissioned by the nonprofit Physicians Advocacy Institute (PAI) and conducted by Washington, D.C.-based consultancy Avalere Health, showed that a 49% increase in hospital employment of physicians between 2012 and 2015 coincided with an increase of $2.7 billion spent on services for four specific cardiology, orthopedic and gastroenterology services.

Meanwhile, costs to Medicare patients rose by $411 million, or 21%, the study found.

Many hospitals indirectly employ doctors through a pseudo-independent foundation model. Avalere found physicians working under this kind of arrangement tended to order and bill for more services than those providing services independently in unaffiliated outpatient centers.

“Hospital consolidation pushes healthcare costs upward,’ PAI President Robert Seligson said.

Kelly Kenney, PAI’s executive vice president and CEO, added that the study “underscores the fact that independent physicians continue to provide patients with affordable, quality care every day.”

The hospital-affiliated outpatient centers Avalere’s researchers focused on are allowed to bill Medicare at a higher rate than independent surgery centers — even though there is no clear evidence hospital outpatient centers deliver higher quality care.

“Medicare is paying hospitals more for the same services because (the federal healthcare program) thinks it costs (physicians) more to provide the same service due to higher overheads,” said Bhagwan Satiani, MD, professor of clinical surgery at Ohio State University’s College of Medicine. He added that doctors working in such settings seem to have an incentive to do more medical procedures.

Independent physicians, on the other hand, tend to be more efficient and have greater through-put, Dr. Satiani said. A better model, he said, would be a system in which hospital-affiliated and independent physicians alike compete “for the same quality, matched services, and then the winner will be the lower-cost entity.”

Kristof Stremiki, director of market analysis and insight at the California Health Care Foundation, said that although he had not reviewed the Avalere study, its conclusions seem to be very consistent with earlier, peer-to-peer studies concluding that “the cost per patient absolutely increases” in healthcare settings where the physician is employed by a hospital system.

He referred to a study published in 2014 showing that hospital-owned physician organizations incurred costs per patient that were 10.3% greater than those billed by physician-owned organizations.

Stremiki noted it has been difficult to compare the two approaches in terms of quality because they are regulated differently by distinct government agencies. But in cost measures, the comparison is clear, he said: Independent physicians are the better deal.

The Avalere study is likely to shift attention to a competing model in which independent physicians working in non-hospital-affiliated ambulatory surgery centers package treatments under what is known as a “bundled payment” system.

With bundled payments, teams of physicians and other medical providers treat patients from pre-operative work all the way through rehabilitation or their final home-health visit. Together these collaborations compete against other programs in their region on the basis of cost, medical outcomes and patient satisfaction.

Stremiki said bundled payments create a powerful incentive in that they typically come with a kind of “30-day warranty” giving patients access to post-op care that’s part of the total price.

Although he hesitated to declare ambulatory surgery centers superior overall, simply because the data is lacking, he said it wouldn’t surprise him if these independent settings are more efficient generally. That’s because these facilities generally specialize in and rack up a higher volume in certain procedures.

“Their quality for that particular procedure goes up,” he said.

Bundled Payments Streamline Care, Improve Access, Making Patients and Doctors Advocates

By Scott Leggett

Dean Chavez never wanted to see the inside of another hospital after being laid up years ago by a motorcycle accident. But when his doctor recently told him he needed a total hip replacement, he at least hoped the experience would be quick and easy.

It was both, thanks to bundled payments, an emerging model of healthcare that packages and coordinates procedures as a single purchase.

Chavez said there were a couple of phone calls, a little consultation, the surgery — “and that was it!” No barrage of bills, no explaining his situation to one team of medical providers after another.

“It was easy. Piece of cake,” he said, adding that bundled payments “definitely” streamlined his surgical procedure experience, and that he would recommend it to family and friends.

If the kind of service Chavez received seems foreign to other patients, odds are they haven’t heard of bundled payments.

This expanding model for healthcare reimbursements benefits patients more directly — and on a more intuitive level — than the common alternatives of traditional fee for service and capitation. Bundled payments basically offer streamlined care that’s easy to access.

The simplicity is appealing. Medical providers team up to treat a condition such as Chavez’s total hip arthroplasty, from pre-operative work through the final visit to the physical therapist. Together these collaborations compete against other programs in their region on the basis of cost, medical outcomes and patient satisfaction.

Think of it like buying a car, or going out to a restaurant. We don’t purchase a tire from one supplier and the steering wheel from somewhere else, just as we wouldn’t expect to order a steak from one diner then cross the street to get a side dish. One package, one price.

Giving Patients Clarity

The bundled payments system gives patients clarity where they previously had none. Bundled prices are set out ahead of time, with a single out-of-pocket expense rather than trickles of multiple bills over months and months. Some employers are even waiving that out- of-pocket expense for workers who elect to use a bundled payment program.

Meanwhile, patients receive a start-to-finish treatment and recovery plan. Goals are specified in terms important to them, such as pain reduction or restored mobility.

With greater transparency also comes unity of purpose — a teamwork ethic — rarely seen by many healthcare consumers. Providers work together on a shared vision for getting the patient better.

“This model is about improving patient care,” wrote Patrick Conway, MD, former principal deputy administrator and chief medical officer at the Centers for Medicare & Medicaid Services (CMS), referring to bundled payments. “Patients want high-quality, coordinated care — not just for a day, but for an entire episode of care.”

Of course they do. They’re just not used to it.

Under the fee-for-service system, patients became accustomed to a time-consuming schedule of medical appointments, some of questionable value. It was rare that people at the physical therapy office knew anyone at the home health agency.

Capitation was hardly an improvement. The healthcare system’s driving incentive was no longer to maximize volume of service, but to pare back wherever possible. Patients were penalized for going outside their network for higher-quality care.

With consumer feedback diluted in large populations, consumers were left wondering how much their satisfaction really matters.

A better model did emerge, but until recently it was limited to certain corners of healthcare. Bundled payments became common in knee replacements, organ transplantation and Lasik eye surgery.

The system’s advantages are evident within the healthcare industry, following highly successful experiences over more than a quarter century. Demonstrations in different states and countries have achieved substantial savings while improving medical outcomes and patient satisfaction. CMS has seen success with bundled payments and has indicated it will continue to incentivize their use.

“Stress Relief”

In an early test of bundled payments, between 1991 and 1996, CMS paid for all services required for coronary artery bypass graft surgery, plus 90 days of post-discharge services, in a lump sum. Every participating hospital reported lower inpatient mortality rates and higher patient satisfaction.

More recently, the Swedish County of Stockholm started covering healthy patients’ hip and knee replacements using bundled payments in 2009. Within two years, medical complications were down a third. It has since applied the reimbursement system to other conditions.

As results like these have stacked up, large employers like Lowe’s have begun bundled-payment contracting for certain procedures. Industry observers see the trend growing not just in volume but in other areas of medicine, including treatment of chronic diseases.

A final advantage deserving mention is the effect bundled payments have on premiums. As a system of financial incentives, it does more than traditional arrangements to limit premiums paid by patients and their employers — all while promoting higher standards of care.

For his part, Chavez said he appreciated the simplicity bundled payments offered him, along with the “stress relief” of not getting bills for things insurance doesn’t cover.

The arrangement also came with the personal benefit of being cared for by professionals who are used to working together for maximum patient comfort.

“My experience at the surgery center was the staff was great, answered every question and then some,” he said. “I knew exactly what was coming up and what to do. Everyone was pleasant along the way.”

Healthcare Bundled Payments Lower Costs and Improve Medical Outcomes

Written by Thomas D. Wilson

The traditional fee-for-service system of healthcare in the United States is being challenged by a “bundled payment” structure, supporters say it has the potential to increase transparency, lower costs and improve medical outcomes.

The idea is to set prices for treating various conditions, adjusted for factors such as age, and let medical providers compete for customers. Instead of being paid according to the volume and type of services they provide, hospitals and physicians would receive a fixed amount to deliver a full cycle of care, from tests to medical devices to follow-up.

Already bundled payments are in use domestically for joint replacement surgeries and other procedures. These initiatives have been shown to reduce costs even as they improve outcomes.

Medicare Savings Average 20%

A recent study examining 3,924 lower extremity joint replacement procedures at Texas-based Baptist Health System found bundled payments saved an average of $5,577 per episode. Procedures with no complications saved Medicare 20.8% on average, while those with complications netted average savings of 13.8%. Costs for those requiring a prolonged hospital stay dropped 67%.

Bundled payments are not universally favored, partly because they would disrupt what many consider a flawed system of financial incentives. Large insurers tend to favor the leading alternative: capitation, in which medical providers receive a fixed amount per patient monthly regardless of condition. Capitation shifts financial risk to providers while offering limited accountability for inadequate care.

Supporters of bundled payments contend capitation reinforces the trend toward consolidation of providers as hospital systems strive to deliver services in-house. They say this could pressure insurers to merge, as well, to counter hospitals’ bargaining power.

Published Price, Defined Goal

By contrast, Harvard University professor Michael E. Porter and professor emeritus Robert S. Kaplan wrote in a 2016 article in the Harvard Business Review that bundled payments draw on an approach used in other industries: pay a published price to arrive at a defined goal.

To maximize the benefit to patients, they proposed five conditions for bundled payments: cover the full cost for a given condition, make payment contingent on good outcomes, adjust price for risk, allow a fair profit and relieve providers from responsibility in catastrophic cases or unrelated care. Porter and Kaplan also suggested using “stop-loss” provisions to shield providers from outlier cases.

The authors insisted bundled payments can work not just in the case of acute conditions but also chronic disease management and primary care “because of the huge benefits that result from coordinated longitudinal care by a multidisciplinary team.” And while they acknowledged prices may initially increase to pay for better care, “even these prices will fall as providers become more efficient.”

A Rand Corp. analysis of bundled payments concluded such systems can indeed eliminate unnecessary spending — assuming the system is designed properly.

“If bundled payments do not take severity of disease into account, providers may not want to care for sicker patients because of the risk of financial losses,” Rand’s analysis found. “How well this aspect of the bundled payment system is designed will affect potential savings.”

Benchmarking Study of 1,000,000 Surgeries in ASCs Demonstrates Minimal Surgical Site Infections, Emergency Department Visits and Readmission Rates

Written by Thomas D. Wilson

Since two physicians opened the first modern day surgery center in 1970 in Arizona as a high quality, lower cost alternative to inpatient hospital surgery care, Ambulatory Surgery Centers (ASCs) have transformed the surgical landscape.

Delivering exceptional outcomes and exceedingly high patient satisfaction scores at substantially lower costs, ASCs are arguably one of the greatest values in medicine. Comparative data involving over 1,000,000 surgeries performed in ASCs in 2015 – 2016 from the California Ambulatory Surgery Association (CASA) indicate an ASC post-operative surgical site infection rate six times lower than hospital outpatient surgery departments (HOPD). CASA’s benchmarking reports on fundamental quality indicators including infection rates, emergency room visits and readmissions provide increased transparency to patients seeking surgical services.

California, the nation’s most populous state, has embraced the ASC, and now is home to more than 760 facilities that are known for pioneering new surgical methods, efficient reimbursement strategies, excellent outcomes, and exceptional patient care1. Championing the success and growth of ASCs in the state is CASA. Founded in 1988, CASA is recognized as a leader in the outpatient surgery educational field, providing outcome data, operational comparisons, benchmarking and best practices to ASC managers, healthcare professionals, regulators and the public.

In this report, we will review CASA’s benchmarking results and compare them with similar HOPD data. We will also review the medical benefits available to patients who select an ASC for their care, examine the cost savings that ASC patients benefit from, and discuss next steps needed to further develop a universal method of benchmarking.

CASA Benchmarking

CASA collected data from 147 participating ASCs throughout California. These ASCs performed 1,041,000 surgical cases in 2015 and 2016. The participating ASCs represent urban and rural regions of California and range in size from centers with fewer than 1,000 to more than 15,000 cases.  Read more >

The Leader in Surgical Bundled Fees for Surgery Centers Launches Bundled Payment Program

San Diego, CA, May 6, 2015 —- California based Global 1 in partnership with Blue Shield of California (BSC) launches the Bundled Fee Program which provides a pre-determined single payment option for an episode of care at an Ambulatory Surgery Center (ASC).

The program is designed to provide alignment with the facility, surgeon and anesthesiologist to which leads to a high quality outcome in a lower cost setting. It is designed for a particular pre-diagnosed condition requiring surgery, such as, orthopedic and joint replacement surgery.

The single payment option reduces waste and redundancies by creating true alignment of all providers around a surgical episode of care. The program has the potential to dramatically reduce cost, while providing budget certainty to patients, payers and/or employers.

The BSC Bundled Fee Program is expected to be the main payment methodology for surgical episodes (for PPO members), in next 5-10 years.

“The single payment option motivates the facility and physicians to function as one team and to adopt best practices,” states Global 1 Principal, Tom Wilson. “This program was developed out of a need for transparency in pricing for routine surgeries performed at an ASC.” The advantage to patients, surgeons and providers are robust and easily implanted in the ASC setting:

Advantages to the Patient:

  • One price, One deductible and/or co-pay, One EOB, One Stop Service.
  • No hassle with multiple bills.
  • Cost transparency to the patient.
  • Lower cost than other options.
  • Significantly less chance for infection and complications.
  • Enhanced “patient centric” experience and greater patient satisfaction.

Advantages to the Surgeon:

Professional “physician centric” experience, combined with the ability to perform higher acuity cases in the ASC setting resulting in lower infection and complication rates.

  • Improved productivity due to efficiencies.
  • Active participation in the episode of care and clinical outcomes.
  • More marketable to patients seeking increased value and personal care.
  • Global 1 will handle program approvals required by BSC for the Bundled Fee Program.
  • Ease of billing.