Looking Behind the Headlines, Physicians Find Good News in the Implementation of U.S. Healthcare Policy

By Tom Wilson

Physicians reading the news about U.S. healthcare policy may wonder about the fate of their profession amidst the backdrop of highly-charged healthcare policy debates in Washington, D.C., and attendant media coverage often focusing on the political stories rather than the practical realities of delivering medical care to patients.

Behind the headlines, behind the political battles, behind the avalanche of media coverage, there are reasons for physicians to feel encouraged by actual healthcare policy implementation.

Health and Human Services Secretary Alex M. Azar II, in a recent speech, outlined an aggressive agenda intended to speed long-standing efforts to reform healthcare by empowering the consumer, improving transparency, encouraging innovation and challenging vested interests. In the details of this effort is very positive news for independent physicians.

Azar, speaking before America’s Health Insurance Plans meeting in March of this year, laid out his agenda with a focus on four areas of reform. They include:

  • Giving consumers greater control over health information through interoperable and accessible health information technology.
  • Encouraging transparency from providers and payers.
  • Using experimental models in Medicare and Medicaid to drive value through the introduction of market forces into healthcare, shifting control from large healthcare systems to the consumer.
  • Removing government burdens that impede this value-based transformation.

For independent physicians, each of these four focus areas has important implications.

Health Information

Giving consumers greater control over health information means, in part, that consumers will take possession of their own electronic health records, carrying their EHRs with them on their nearly ubiquitous mobile devices, or making them available via downloads at the request of a patient.

“Patients ought to have control of their records in a useful format, period. … [T]he healthcare consumer, not the provider, ought to be in charge of this information,” Azar noted.

Having healthcare records in a pocket or purse will open new options for patients, driving healthcare consumerism and empowering consumers to shop for and evaluate healthcare services. With almost every consumer facing significant out-of-pocket expenses associated with any major healthcare event, it is inevitable that healthcare consumers will focus on cost management in healthcare, just as they do in every other aspect of their economic lives. Recognizing this, Azar pragmatically advocates aligning policy with the technological and financial realities of modern healthcare consumption.

According to Azar, unless this technology is in the hands of consumers, “the benefits may never arrive.” Further, Azar noted, “[E]mpowering consumers and individuals has been key to the advances of the Information Age.”

Supporting healthcare consumerism is seen as a means of controlling and driving down unsustainable healthcare costs, just as consumerism has had the same effects in other market sectors.


Here Azar is equally direct, stating, “I believe you ought to have the right to know what a healthcare service will cost — and what it will really cost — before you get that service.”

Consumers know with certainty what they will pay for goods and services in every other area of their lives, save for healthcare.

Recognition of this reality by forward thinkers in the greater healthcare community, including physicians, insurance companies, regulators, payers and thought leaders, has led to the successful creation and implementation of bundled payments as a means of providing complete episode-of-care services to a patient for a predetermined fixed price, provided to the patient prior to the outset of care.

While there are ongoing efforts to promote across the board price transparency in healthcare, bundled payments remain the only proven, reproducible packaging of healthcare services that provides true transparency for consumers.


Here, Azar is most clearly intent on unlocking larger market forces to drive down healthcare costs.

“We want to move to a system where we can be agnostic about ownership structures, a system that will allow independent providers to group together to drive innovation, quality and competition,” Azar noted.

The key here for doctors is Azar’s support for independent physicians and organizational flexibility that supports innovation, which in turn yields higher quality and drives competition to lower healthcare costs overall.

In the end, such an effort will yield value to the marketplace.

Azar intends to power this change with the financial and regulatory clout of Medicare and Medicaid. Here physicians can expect experimentation that will touch them directly with new payment and incentive models, reduced regulatory burden (already under way with MIPS) and incentives to streamline and improve the effectiveness of electronic health records and the sharing of health records with patients and other providers.

Finally, Azar wants to ease the collection of outcomes data and open the way for sharing that data to inform innovation and engage consumers with meaningful, relevant, timely healthcare metrics they can employ in their own healthcare decision making.

Government Burdens

“The fourth key engine for transformation,” Azar noted, “[is] addressing any government burdens that may be getting in the way of integrated, collaborative and holistic care for the patient.”

This call for deregulation may be most welcome by physicians, who, as a group, have been the focus of increasing regulation by both government and payers in an effort to control healthcare costs at the point of care.

Among the four proposed focus areas, the easing of the regulatory burden on physicians may be the most welcome of all.

Change Is Coming

According to Azar, the administration will not be deterred by special interests as it moves to implement marketplace changes to drive down the cost of healthcare.

As he noted at the close of his speech, “Change represents opportunity, and I exhort all of you to take advantage of the opportunities represented by what I’ve discussed today. Because I assure you: Change is possible, change is necessary, and change is coming.”

Healthcare Consumer, Meet Bundled Payments

Story Highlights
• Healthcare consumerism, driven by ever-increasing healthcare costs and rising deductibles, have caused active shopping for healthcare services.

• Physicians are increasingly expected to assist the patient in finding best-value services for prescribed procedures.

• Patient satisfaction assessments are commonly used to reflect the perceived value people receive from their physicians.

• Bundled payments for single episode healthcare services lower costs, improve outcomes and generate high patient satisfaction scores.

By Scott Leggett

Consumerism is coming to healthcare. Count on it.

What is consumerism? Google the word and you will find it defined as the “protection or promotion of the interests of consumers.”

Translate consumers to patients and consumerism in healthcare means the protection and promotion of the interest of patients.

If that sounds a lot like what doctors do every day in their care of patients, you are partially correct. Physicians, by definition, protect the interests of patients and help promote the patient’s interest in their own good health.

What about the promotion of the interests of patients? Here the word promotion takes on an economic cast. That is, while the doctor protects the interests of the patient by healing those who are ill or contributing to the wellness of the healthy, the doctor promotes the interests of the patient by keeping an eye on costs and providing guidance to patients on cost savings and healthcare services.

Is Healthcare Consumerism Real?

In a research study conducted in 2016 by Porter Research and Navicure, nearly two-thirds of responding physicians reported that healthcare consumerism is a consideration with their patients. Almost 70% reported patients are price shopping. More than half of all patients ask about payment plans, and a roughly equal number inquire about the total cost of anticipated treatment.

Clearly, physicians are already encountering the impacts of healthcare consumerism. And while a majority of surveyed doctors reported encountering patients expressing concern about healthcare costs, the study only briefly touched on the fact that nearly half of all patients are inquiring about total payment costs and payment plans. This interest in costs and services will continue to grow and represents the coming wave of healthcare consumerism.

Then there is the issue of consumer choice and how the consumer chooses a doctor. Consumerism at its essence is about choice. For healthcare the manifestation of this choice is expressed as patient satisfaction.

As a further indication of the rise in healthcare consumerism, consider that by 2023 millennials as a generational group will be the largest consumers of healthcare services in the U.S. It is anticipated that they will further accelerate the healthcare consumer movement since they have grown up using electronic media and making informed choices in their role as consumers, just as they have grown up expecting to be satisfied by the outcomes of those choices.

As noted by Dr. Kevin Pho on his widely followed website, KevinMD.com, “As healthcare slowly transitions to a consumer-driven business, patient satisfaction becomes an increasingly important variable in how patients select their care providers.”

Bundled Payments

Enter bundled payments. This well-established approach to packaging healthcare costs — patient pays one amount for all services related to a single episode of care — follows a familiar practice for virtually everything the consumer/patient buys outside of healthcare. Consumers buy specific goods or services and pay one fixed price, such as with the purchase of a house or car.

Bundled payments in healthcare are analogous to packaged pricing elsewhere in a consumer’s life, providing both a single price for goods and services and price transparency.

For the consumer, “episode of care payments” probably sounds like healthcare jargon. However, packaged pricing is how consumers save money at Costco. They get the idea of packaged pricing, and they get price transparency.

Protect and Promote

It is in the interest of the patient to improve care and ensure best outcomes. It promotes the interest of the patient by simplifying their interaction with the healthcare system, which is too often complicated and mind-boggling to the consumer of healthcare services. It most definitely promotes the interests of patients to lower the cost of healthcare services.

Bundled payments do all of this.

As a physician, protecting the interests of your patients comes as second nature. Now is the time to promote the interests of your patients as well.

Bundling payments equips you to protect and promote at the same time. Your patients will be grateful. So will their checkbooks!

Medical Disruption Prompts Physicians to Make Change Amidst Increased Pressure to Reduce Costs

By Tom Wilson

The gauntlet has been thrown down: Healthcare in the U.S. is too expensive. Fix it.

Caught in the crosshairs of this challenge to the healthcare industry as a whole are healthcare’s indispensable players: physicians.

Working with, around and sometimes seemingly against physicians to answer the challenge of fixing healthcare and creating a medical disruption are a host of players with little or no experience in the field. However, what they lack in experience these new players make up for with market power, financial power, technological sophistication and successful track records at disruption. Think Amazon, Apple, Google, Microsoft, Uber and a host of others less familiar, but no less formidable, corporate and nonprofit entities.

What does this mean?

Never in the annals of healthcare has so much innovative firepower been directed at an industry notoriously resistant to the kind of productivity and technological changes that have been accepted as standards for operations and product improvement for other industries. Think banking and finance, communications, transportation, and manufacturing.

In the face of this tsunami of medical disruption prompted by the increasingly urgent search for cost savings in healthcare, doctors often face stark choices: Will they choose to practice medicine as independent physicians or work for a hospital foundation? Will physicians stick with the way things have always been done or embrace the new technologies and techniques sweeping the healthcare industry? Think digital medicine, big data, artificial intelligence, telemedicine, bundled payments, outpatient surgery, remote patient monitoring, the focus on health rather than care.

Taken together these medical disruption forces represent a new form of competition in healthcare. Doctors are challenged to embrace the newly competitive healthcare marketplace or risk their ability to compete at all.

What exactly is the cause of these increases in healthcare costs?

There are compelling numbers that point to consolidation among traditional healthcare service providers add to increased costs, along with reduction in competitive pressures that operate so effectively in other markets to moderate cost increases.

“Prices are high and vary in seemingly incoherent ways, yet quality of care is uneven, and the system lacks the innovation and dynamism that characterizes much of the rest of our economy,” noted Martin Gaynor of Carnegie Mellon University in a white paper on healthcare consolidation. “The dearth of competition in our healthcare markets is a key reason for this dysfunction.”

Driving this dysfunction are the numbers that show a healthcare provider marketplace undergoing considerable consolidation that has had a surprising impact underlying higher healthcare costs.

  • Hospitals operating in markets with no local competitors charge about 16% more on average than hospitals with four or more competitors.
  • Even in markets where there is competition, dominant players — hospitals with significant market share — charged nearly three times more than their competitors.
  • Group practices with nine or fewer physicians declined from 40.1% of all practices in 2013 to 35.3% in 2015. During the same period, large practice groups, with 100 or more physicians, increased from 29.6% to 35.1% of all practice groups.
  • The American Hospital Association reported that, during roughly the same period, the number of physicians and dentists employed by hospitals increased by 56.7%. Physicians employed by hospital foundations use more costly hospital facilities to provide outpatient care.
  • A recently released report on the impacts of consolidation in the California Healthcare market found “a strong correlation between consolidated hospitals, physicians and insurance markets and higher prices.”

Often overlooked in this analysis of the decline of competitiveness is the rise of what has become a proven alternative to expensive fee-for-service in-patient hospital surgical care: ambulatory surgery centers (ASCs) and bundled payment models, both of which have proven to lower costs and improve outcomes, particularly when surgeries are bundled in an ASC setting.

Even as healthcare consolidation continues, the number of ASCs operating in the U.S. has grown dramatically. According to the Ambulatory Surgery Center Association, there are currently more than 5,600 ASCs in the United States. This is up from approximately 1,000 ASCs in operation in 1988.

California leads the nation in the number of ASCs with 794 as of June 2017.

So while there’s has been a marked increase in hospital consolidation, there has been parallel growth in ASCs as outpatient surgery centers act as an effective counterweight to the higher costs resulting from the consolidation of hospitals.

At the same time, the application of bundled payment models has increased dramatically with the focus on payers contracting directly with doctors rather than hospitals.

As reported in Becker’s Hospital CFO Report, “Payers are increasingly contracting with physicians, and not hospitals. And why physicians? Because they view the physicians predominantly as decision makers … Under these arrangements, physician groups pay out the hospital facility fee, saving the insurer from a more complicated three-party agreement. However, this type of arrangement means only the physician groups, and not the hospitals, receive a share of the savings created by the bundle.”

While competitive and disruptive forces are unsettling healthcare and physician practices with doctors facing increased pressure to adapt or be left behind, innovation in the form of ASCs and bundled payments is alive and well and contributing to the unrelenting efforts to create medical disruption and reduce healthcare costs in the U.S.

Transparent Bundled Payments Mesh With Big Tech in Race for Healthcare Value and Cost Savings

By Scott Leggett

Before the exciting news of big tech companies, including Amazon and Apple, announced their entrance into the healthcare space, the creation of bundled payments was born as an alternative to the traditional fee-for-service model.

The bundled payment approach consolidates fees for whole treatment regimens from start to finish, allowing an objective decision and a transparent financial transaction for the patient. In the face of the sophisticated technology tidal wave engulfing healthcare, the simple technology of bundling healthcare services and fees stands as the surest way to reduce costs and deliver true value to the patients.

As spine surgeon Adam Bruggeman, MD, said in comments reported by Becker’s Spine Review, public and private payers need to know they’re paying for value and quality, not quantity.

“The easiest way surgeons will be able to show value,” he noted, “is through partnering with CMS (the federal Medicare administrator) and private insurers through bundling in a way that financially incentivizes the physician significantly and also provides the insurance company with cost savings.”

Prevention, Bundles and Engagement

No single deal speaks louder about technology’s influence on the future of healthcare than the partnership recently unveiled among Amazon, Berkshire Hathaway and JPMorgan Chase. The three companies intend to expand the role of technology to streamline healthcare and increase transparency, thus reducing costs. Their willingness to disrupt the healthcare space will fuel the innovation represented by bundled payment arrangements that have long-delivered transparency, simplicity and cost savings.

The three-company partnership also promises to invest heavily in prevention to reduce healthcare costs. Historically, prevention and bundled payments taken together have been effective at offsetting higher healthcare costs.

Adding to the focus of the corporate trio on reducing healthcare costs is Apple’s announcement that it will enable its customers to view their health records right on their mobile devices. Apple customers will be able to access healthcare data via their phone just as they access their bank accounts.

A key component of all these initiatives is patient engagement. As recently reported by the Healthcare Intelligence Network (HIN), engaged patients improve outcomes. According to HIN, “84% of physicians believe patient engagement is beneficial.”

In support of Apple’s medical records initiative, HIN reports that “60% of providers believe access to online records improves quality of care.” Engaged patients have lower readmissions and encounter fewer medical errors.

Patient engagement plays an important role in bundled payments as well. As noted in an article recently published by RevCycleIntelligence.com, “Patients need to be on board with the healthcare organization’s clinical and financial goals to succeed under bundled payment models.”


Like so much disruption coming from the tech sector these days, new initiatives to reshape healthcare promise technology-driven change with or without cooperation from traditional health systems.

Heralding changes in how and where consumers get medical care, observers see the technology transformation in healthcare as accelerating the shift away from inefficient care in high-cost settings and toward a competitive model like bundled payments where results counting patient engagement is encouraged and supported by new, innovative healthcare solutions.

Amidst this change, physicians will play an important role in helping patients navigate the healthcare options before them. With the assistance of technology created by companies like Apple, Amazon, Berkshire Hathaway and JPMorgan Chase, physicians will have unparalleled support to educate and engage patients in better choices of prevention and healthcare options.

As Neil Badlani, MD, notes in an article published in Becker’s Spine Review, “As physicians, it is our responsibility to educate our patients with accurate and comprehensive information about their conditions and treatment options.”


Trend Alert: Outpatient Care, Bundled Payments Gain Momentum


By Scott Leggett and Sohrab Gollogly, MD

For all its uncertainty in other areas, the past year in healthcare may well go down as a watershed in the transition to more cost-effective healthcare.

Players big and small moved decisively toward ambulatory surgery centers in 2017, continuing the shift away from higher-cost hospital settings. More of the same is likely ahead in 2018 as the industry prepares for what many see as an inexorable realignment of healthcare relationships and financial incentives.

“Right care, right place, right time, for the right reason, at the right cost,” Mizuho Securities analyst Sheryl Skolnick told the Wall Street Journal. “High-cost inpatient facilities are the loser, oftentimes, in that scenario.”

The transition could prove pivotal. Insurers and other healthcare payers are increasingly turning their back on hospitals’ fee-for-service reimbursement model, and instead are embracing risk-based financial models such as bundled payments. This will allow surgery centers to compete more evenly, on the basis of cost, medical outcomes and patient satisfaction.

Notable Developments for Outpatient Care and Bundled Payments in 2017

EXPANDED USE OF BUNDLED PAYMENTS EXPECTED WITH SHIFT TO RISK-BASED REVENUE – American Medical Group Association (AMGA) members indicated in a survey released in December that they expect nearly 60% of their Medicare revenues to come from risk-based products by 2019. This shift is expected to expand the use of bundled payments, in which independent physicians working in outpatient surgery centers offer competitively priced treatment packages covering everything from pre-operative work to rehabilitation.

HOSPITALS INVESTING IN OUTPATIENT CARE – Hospitals are themselves investing in outpatient settings. Faced with a continuing decline in hospitalization rates, they too are benefiting from technology that makes ambulatory surgery centers more and more capable of performing advanced medical procedures.

OUTPATIENT CATEGORIES ADDED TO BPCI MODEL – The Centers for Medicare Services, under its Bundled Payments for Care Improvements (BPCI) Initiative, announced BPCI Advanced, which added three outpatient categories to the BPCI model.

View full article

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.

To read the whole article, click HERE

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 >