Clinical Review & Education

Surgical Innovation

Bundling Payments for Episodes of Surgical Care Thomas C. Tsai, MD, MPH; David C. Miller, MD, MPH

What Is the Innovation? The Affordable Care Act is accelerating a shift away from the standard fee-for-service model and toward value-based payments in the Medicare program. Episode-based bundled payments have emerged in this context as an alternative reimbursement model. By paying groups of providers (ie, hospitals, physicians, and post–acute care facilities) a single target price for all services across a defined episode of care, many believe that bundled payments will create stronger incentives to eliminate unnecessary spending while maintaining high quality of care. While both private and public payers have experimented previously with bundled payments, the largest program to date is the Bundled Payments for Care Improvement (BPCI) Initiative from the Center for Medicare & Medicaid Innovation. The BPCI allows participating organizations to enroll in bundled payment agreements with Medicare for up to 48 predefined clinical conditions aggregated from the Medicare Severity Diagnosis-Related Groups system. These conditions include major surgical procedures, such as coronary artery bypass graft, hip replacement, knee replacement, major gastrointestinaloperations,andvascularsurgeryprocedures.Especiallyforpatients undergoing orthopedic procedures, preliminary findings suggest that bundled payments could lower costs through more judicious use of post–acute care services.1 However, many BPCI participants have focused on selected high-volume conditions; it remains to be seen whether episode-based bundled payments will emerge as an alternative payment model that is applicable to only a few conditions or capable of broadly transforming health care delivery.2

What Are the Key Advantages Over Existing Approaches? Medicare currently pays hospitals, physicians, and post–acute care facilities using separate payment programs, and these payment silos represent significant barriers to transitioning toward high-value care for surgical patients. While payment bundles may exist in a specific setting or for a specific type of hospital, physician, or post– acute care facility (such as payment by Medical Severity DiagnosisRelated Groups for hospitals or a 90-day global payment for surgeons), there are few direct incentives for multidisciplinary provider collaboration across different providers for a given episode of care. In a prospective episode-based bundled payment model that defines an index inpatient surgical procedure as the initiation of an acute surgical episode, hospitals would receive a payment that is intended as reimbursement for the entire episode of care. In theory, hospital-based surgeons would be incentivized to provide highquality care up front by decreasing complications and unnecessary readmissions and better coordinating care after the patient is discharged from the hospital.

How Will This Affect Clinical Care? By aligning reimbursement across the spectrum of hospitals, physicians, and post–acute care facilities, bundled payments could acceljamasurgery.com

erate the establishment of innovative delivery models, such as team-based and home-based care that could mitigate overuse of post–acute care services and reduce readmissions resulting from poor health care coordination. In addition, because hospitals, physicians, and post–acute care facilities share financial risk, bundled payments could also reduce duplicate and unnecessary diagnostic testing. Despite the potential benefits for surgical care, bundled payments could result in unintended and even negative consequences.3 First, although bundled payments may lower costs by reducing the volume of services in an episode, these savings may be easily offset by an increase in overall episode volume. Second, without appropriate quality measurement, bundled payments could lead to underuse of necessary services during a surgical episode. Third, there is a concern that bundled payments may reduce hospital, physician, or post–acute care facility choice because of narrow networks that develop from hospitals contracting with preferred post–acute care facilities or physician groups.

Is There Evidence Supporting the Benefits of the Innovation? Because surgical care often involves discrete health care cycles anchored by an index hospitalization, episode-based bundled payments may be especially promising for surgical care, and many private payer programs have been successful. For instance, existing bundled payment programs for kidney transplantation have contributed to improvements in the quality and cost-efficiency of these complex surgical episodes. Examination of geographic variations in spending also provides indirect evidence for how episode-based bundled payments could yield higher-value care. A key finding from the Institute of Medicine’s report4 on geographic variation in spending was that expenditures for post–acute care services (ie, skilled nursing facilities, inpatient rehabilitation facilities, and home health agencies) represent the largest driver of variation in Medicare payments. For major surgical procedures like hip replacement, coronary artery bypass graft, back surgery, and colectomy, post–acute care accounts for 31% to 85% of the variation between high- and low-cost episodes.5 Because episode-based bundled payments apply across acute care and post–acute care settings, this alternative payment model presents an important opportunity to contain costs and improve the quality of care.

What Are the Barriers to Implementing This Innovation More Broadly? While many stakeholders are optimistic about bundled payments, previous attempts to implement this model have achieved mixed results. In 2010, the Integrated Healthcare Association developed a bundled payment demonstration for orthopedic surgery that included 6 of California’s largest health plans, 8 hospitals, and an in(Reprinted) JAMA Surgery September 2015 Volume 150, Number 9

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Clinical Review & Education Surgical Innovation

Bundling Payments for Episodes of Surgical Care

dependent physician practice association. Despite significant technical assistance and buy-in from stakeholders, very few bundling contracts were ever implemented. Key challenges included difficulties in developing bundle definitions, lack of consensus between health plans and hospitals, physicians, and post–acute care facilities regarding how to set target prices for bundles, and the lack of technical infrastructure for processing and paying claims.6 In addition, proper risk adjustment across an episode of care will be needed to ensure appropriate levels of payment and access to care for patients who are more likely to have high-cost episodes owing to disease severity, medical comorbidity, or socioeconomic circumstances. There is a need for new risk-adjustment methods that account for how patient characteristics and comorbidities relate to differential use of services (such as involvement of clinical consultants and/or use of post–acute care services) that are included in the bundle. Without appropriate risk adjustment of bundled payments, there is a reasonable concern that bundled payments could lead to access concerns for the highest-risk patients. One of the key obstacles in prior efforts to implement bundled payments has been the complexity of executing multiple contracts across hospitals, physicians, and post–acute care facilities. The consequences of bundled payments for surgeon reimbursements remain unknown, and previous efforts at bundled payments have foARTICLE INFORMATION Author Affiliations: Department of Surgery, Brigham and Women’s Hospital, Boston, Massachusetts (Tsai); Department of Health Policy and Management, Harvard T. H. Chan School of Public Health, Boston, Massachusetts (Tsai); Dow Division of Health Services Research, Department of Urology, University of Michigan, Ann Arbor (Miller). Corresponding Author: Thomas C. Tsai, MD, MPH, Department of Surgery, Brigham and Women’s Hospital, 75 Francis St, Boston, MA 02115 (ttsai @partners.org). Section Editor: Justin B. Dimick, MD, MPH. Accepted for Publication: April 19, 2015. Published Online: July 8, 2015. doi:10.1001/jamasurg.2015.1236. Conflict of Interest Disclosures: Dr Tsai reports currently serving as an adviser in the Office of the Assistant Secretary for Planning and Evaluation in

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cused on salaried surgeons in integrated delivery systems. Given a complex landscape ranging from private practice to integrated salary models that exist among surgical practices, a one-size-fits-all approach may not be feasible.

In What Time Frame Will This Innovation Likely Be Applied Routinely? Although early efforts at episode-bundled payments have had mixed results, they provide important lessons for ongoing and emerging innovations in this area. One promising aspect of BPCI is the deep involvement of both a major payer—Medicare—and the participating hospitals, physicians, and post–acute care facilities in a collaborative effort to experiment with the design of episode-based bundled payment models that are potentially more acceptable and sustainable. By announcing a major initiative this year to transition 50% of all fee-for-service Medicare payments to 1 of 2 alternative payment models (accountable care organizations or bundled payments) by 2018, policymakers have signaled that the transition to paying for value rather than volume is here to stay.7 Surgeons and surgical researchers should therefore engage in empirical and operational analyses that define the best practices for meeting the challenges associated with implementing bundled payments. In doing so, we can play a central role in shaping the future surgical delivery system.

the US Department of Health and Human Services. No other disclosures were reported. Disclaimer: The views expressed in the manuscript are those of the authors and do not reflect the official views of the US Department of Health and Human Services. Submissions: Authors should contact Justin B. Dimick, MD, MPH, at [email protected] if they wish to submit Surgical Innovation papers. REFERENCES 1. The Lewin Group. CMS Bundled Payments for Care Improvement (BPCI) Initiative Models 2-4: Year 1 Evaluation & Monitoring Annual Report. Falls Church, VA: The Lewin Group; 2015. 2. Tsai TC, Joynt KE, Wild RC, Orav EJ, Jha AK. Medicare’s Bundled Payment initiative: most hospitals are focused on a few high-volume conditions. Health Aff (Millwood). 2015;34(3):371380.

3. Weeks WB, Rauh SS, Wadsworth EB, Weinstein JN. The unintended consequences of bundled payments. Ann Intern Med. 2013;158(1):62-64. 4. Newhouse JP, Garber AM. Geographic variation in Medicare services. N Engl J Med. 2013;368(16): 1465-1468. 5. Miller DC, Gust C, Dimick JB, Birkmeyer N, Skinner J, Birkmeyer JD. Large variations in Medicare payments for surgery highlight savings potential from bundled payment programs. Health Aff (Millwood). 2011;30(11):2107-2115. 6. Ridgely MS, de Vries D, Bozic KJ, Hussey PS. Bundled payment fails to gain a foothold in California: the experience of the IHA bundled payment demonstration. Health Aff (Millwood). 2014;33(8):1345-1352. doi:10.1377/hlthaff.2014.0114. 7. Burwell SM. Setting value-based payment goals—HHS efforts to improve U.S. health care. N Engl J Med. 2015;372(10):897-899.

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