4 Problems With Bundled Payments

How Will They Affect Your Income?

Kenneth J. Terry


January 19, 2012

In This Article

Problem #4: How Much Care and Treatment a Doctor Provides

Beyond obtaining agreement on devices and protocols, an effective bundling program also requires "utilization management," or checks on how much resources doctors use.

Abrams favors having department chairs speak to physicians who are outliers in areas such as test ordering or who don't follow protocols. Another approach, Giles notes, is for hospitals to provide physician-profiling data to medical group leaders and let them deal with the outliers.

But some practicing physicians will have difficulty accepting this managed-care approach. For instance, Gregory Hood, MD, an internist in Lexington, Kentucky, points out that he sees an unusual number of patients with complex problems. "It's unclear how bundled payments can take care of the needs of those patients, the physician, and the hospital when it is a case that falls out of the norm," he says.

Problem #5: Dividing the Pie

If healthcare organizations can provide care at a cost that's less than the bundled payments, the resultant savings may be divided between hospitals and physicians in a variety of ways. The most common approach is to pay doctors 100% of their Medicare or private insurance fees and add a gain-sharing bonus if they meet quality and efficiency targets or prevent complications.

Eventually, hospitals may ask physicians to share in downside risk as well. But right now, they're reluctant to do that. They fear that community doctors might not participate in such a program because of their bad experiences with HMO capitation.

Simon Prince, MD, a nephrologist in Manhasset, New York, who leads a local independent physician association, views bundling itself as a form of capitation, "which traditionally is a dirty word. We have to do something about healthcare costs, but it's a big change from where the majority of practitioners are living today. Moving ahead to payment bundling when people are living in a fee-for-service world is a little scary."

Prince also dislikes the idea of hospitals being in charge. Hospitals and physicians both support quality improvement, evidence-based-medicine protocols. and care coordination, he says, but the real problem with bundling is that the hospitals get to decide how the payments will be divided. "At the end of the day, they hold the cards. They have all the leverage in the relationship."

Robert Berenson, MD, a senior fellow at the Urban Institute, concurs with that view and says he wouldn't be surprised if hospitals took the bulk of savings because Medicare's hospital payments represent about 85% of the cost for an inpatient episode of care. But Zucker disagrees, noting that bundling would be impossible without physician cooperation.

When Baptist Health joined the ACE program, he says, it formed a physician-hospital organization that included all the physicians who were eligible for the bundled-payment program. The physicians and the hospital had equal voices in the organization, and they decided to split the bundling proceeds 50/50, subject to the ACE demonstration's limit of 25% of a physician's Medicare reimbursement. (The ceiling is 50% in Medicare's new bundled-payment program.) Baptist saved $2.2 million in the first year of the pilot, mainly due to lower costs for implants, and 78% of the physicians received bonuses.


Physicians have some justifiable concerns about how bundled payments might affect them, professionally and financially. But the evidence so far is that hospitals want to collaborate with them so that both sides can benefit from this new form of reimbursement.

Some doctors, especially those in private practice, have long resisted the need to follow clinical protocols. But Berenson points out that most California physicians have accepted practice guidelines, and there's no reason why doctors elsewhere can't do the same if they have a "common business interest" for doing so. "That overcomes a lot of the autonomy concerns," he says.


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