Bundled PaymentsAre you ready for bundled payments for healthcare?

– Part 2 –

In the first installment of Are you ready for bundled payments? we looked at some of the basics, including CMS episode-of-care definitions, and a few guidelines for creating episodes of care. In Part 2, we’ll continue our exploration of bundled payments with an overview of cost distribution analysis.

Step Two -Examine the distribution of costs

across services before creating bundled payments for healthcare, or setting prices for bundles, The American Hospital Association (AHA) recommends that providers carefully examine how costs are distributed across the various services that comprise each potential new bundled payment for healthcare.  As you evaluate, you’ll find that some episodes of care are better candidates than others when it comes to creating effective bundles. Look for cost concentrations by service type, and based on your findings, try to identify ways to trim costs.  For example, in a major joint procedure, the AHA states that nearly a third of the costs involved are concentrated in post-acute care (PAC). Reductions often may be achieved by establishing partnerships with other providers.

Step Three -Pinpoint sources of variation

Costs can vary significantly within care practices. Therefore, it is crucial to pinpoint and control these variations in order to assure more predictable and more positive financial performance. Begin by evaluating levels and sources of cost variations on a per-case basis, being sure to consider these variations by service type. Once you’ve done that, identify opportunities to control these variations.

Step Four -Map pathways of care

Today, the process of complete patient care often involves multiple treatment settings. So while a patient may begin treatment in an acute care setting, he or she often will continue treatment in a skilled nursing facility, and possibly receive continued home and/or outpatient care. Consequently, it pays to carefully analyze the many possible “pathways of care” in order to identify opportunities for cost-reductions within the bundle. In particular, be sure that you understand where patients tend to receive post-acute care. Reducing the number of steps in this pathway, especially readmissions, is essential.

Step Five -Assess the performance of your post-acute care providers

Having identified your post-acute care providers, carefully evaluate the overall performance of each. Factors to consider include length of stay, quality, and costs. Perhaps most importantly, look at readmission rates, as readmissions can often more than double cost per episode. That being said, it is also important to consider that most readmissions come from the community, rather than from facility settings.  Having and understanding of these providers will assist you in developing bundled payments for healthcare

Step Six -Examine physician practice patterns

Obviously, no two (or more) physicians will ever deliver care in exactly the same way or deliver exactly the same results, even when treating similar patients with similar conditions. But to the greatest extent possible, organizations should strive to deliver consistent treatment practices with consistent results, regardless of who provides the treatment. By examining physician practice patterns, it becomes possible to identify inconsistencies and areas for improvement, as well as best practices that should be incorporated across the organization. The goal is standardize, to the greatest extent realistically possible, areas such as use of supplies, drugs, and devices, use of intensive care, length of stay, discharge destination, follow-up care, readmissions and complications rates.

Step Seven -Assess level and types of risk

As the cost range and potential for variation within a specific episode type increases, so too does the potential for risk. When creating bundles, it is important to consider the variability of costs related to non-hospital services or readmissions. Also factor-in the effect of outliers (cases with extremely high costs). It may be beneficial to consider a reinsurance policy to safeguard against these costs. Within the private sector realm, consider an outlier policy.

Step Eight –Develop a price for the bundle

When establishing pricing for bundled payments for healthcare, begin by looking historical cost patterns. Once you’ve developed a clear picture of these costs, research the bundle prices of competing hospitals. Additionally, look to the future to determine how new treatment innovations may affect pricing in the coming years.


End of Part 2

This concludes Part 2 of Are you ready for bundled payments? Clearly, as with any new system, you’ll encounter many new opportunities, as well as many potential pitfalls. Fortunately, BHM offers the expertise you need to achieve the success you desire. Contact us today to find out how BHM’s proven bundled payment strategies can work for you.


Email: results@bhmpc.com

Phone: 1-888-831-1171


Return to Part 1 of Are you ready for bundled payments?