Medicare testing new way to distribute funds to providers

In an effort to nudge the health care industry toward more cost cutting and efficiency, Medicare is testing a new way of reimbursing doctors, hospitals, therapists and other providers through bundled payments intended to prompt more coordinated care.

Unlike the current fee-for-service method, health care providers accepted into the pilot program will receive a lump payment for the various treatments given during an “episode” of care, such as a heart bypass or hip replacement.

Officials hope bundling payments will fix some of the problems with the fee-for-service method, which emphasizes individual procedures instead of the spectrum of health care services patients often need. Because providers lack incentive to coordinate care with each other, patients can receive services that are unneeded or are available at less cost.

“The hospitals are paid in one payment category, the physicians are paid in one payment category, everybody’s got their own payment silo,” said Blair Childs, spokesperson for Premier Healthcare Alliance, a North Carolina-based association of hospitals. “Everyone is in their own cocoon.”

Last week, Health and Human Services Secretary Kathleen Sebelius announced the pilot program, which was mandated under President Obama’s health care law and may be expanded in 2016. HHS conducted a smaller-scale test on bundled payments for heart bypass surgery 20 years ago and saved about 10 percent in expected costs.

“Patients don’t get care from just one person, it takes a team, and this initiative will help ensure the team is working together,” Ms. Sebelius said. “The bundled payments initiative will encourage doctors, nurses and specialists to coordinate care. It is a key part of our efforts to give patients better health, better care, and lower costs.”

Providers may participate in four different types of “episodes.” One model includes all services provided during a hospital stay, a second model includes a hospital stay plus follow-up services, and a third model consists of follow-up services only. Using the fourth model, Medicare would make a single payment for all services furnished by the hospital, physicians and other practitioners during an in-patient stay.

Hospitals, which would collect the bundled payments and distribute them among the various providers, applauded the program. Mr. Childs said he has high hopes the new method will correct the “insanity” of the present system. Providers will use supplies more efficiently, communicate better when handing patients off to each other, and conduct more patient follow-up, he said.

“If they’re bundling their payment together, they’re going to sit down and say: ’How can we deliver the highest quality care for the patient at the lowest cost possible,’ ” Mr. Childs said.

Nancy Foster, vice president of the American Hospital Association, offered as an example a patient undergoing knee replacement. The procedure would require both a surgeon and an anesthesiologist, after which the patient would remain in the hospital a few more days. After being discharged, they would visit a therapist. Under fee-for-service, each of these providers would bill Medicare separately, she said.

In contrast, providers would be encouraged to cut costs under a bundled payment system, which also offers a bonus to providers who stay below the target price.

“This model tends to create a financial incentive for them to coordinate…if they can, through better coordination reduce the cost of what they’re otherwise getting paid, give Medicare some savings and also achieve further savings off what they’re being paid,” Ms. Foster said.

Physicians, who tend to regard hospitals with some suspicion, are more wary of bundled payments. Glen Stream, president of the American Academy of Family Physicians, fears hospitals may not treat doctors fairly when distributing reimbursements.

“It creates some challenges,” he said. “Obviously you’d have to have a good working relationship between the hospitals and physicians. But even that working relationship can be challenged when you’re dividing up that payment.”

Because bundled payments are based in part on how much a provider has historically spent, it would be difficult for those who are already efficient to obtain the extra bonus for spending below target, Mr. Stream said.

Another concern is that providers could be tempted to cut back on services that should be provided, in order to keep more of the bundled payment and obtain the extra bonus. “My hope is the professional ethics of both hospitals and physicians are such that they wouldn’t let economic issues get in the way of good patient care,” Mr. Stream said.