Bundled Episode Payment

There is growing interest in the health care industry and health policy world in the concept of paying for medical treatment on the basis of the "episode of care" rather than the individual test, procedure, or visit (fee-for-service) or the population-based continuum of care (capitation).  Establishing a single budget or fee for care that involves multiple providers (and provider types) may redress quality and efficiency problems that are rewarded by current payment systems, which increase reimbursement with increased volumes of services. Pricing mechanisms that bundle and fix the price of the components of a complex episode of care also represent a critical first step in providing consumers with transparent price and quality metrics, tools needed to make an informed, value-based selection of a provider team.

IHA Episode Payment Program Background and Objectives:

The Integrated Healthcare Association (IHA) is conducting a multi-payer, multi-hospital demonstration of episode or "bundled" payment in California. The demonstration began with episode payment for total knee and total hip replacement in commercial PPO patients between the ages of 18 and 65. By Q3, 2013, the project will expand to a larger demonstration comprising: 

• 10 acute conditions and procedures;
• 20 physician-hospital teams across California;
• HMO, Medicare Advantage and managed Med-Cal (Medicaid) populations;
• Publish 3 evaluations: economic impact (UC Berkeley), quality impact UCSF) and implementation (RAND)

1. Encourage financial alignment that will support delivery system and process re-engineering to improve patient care quality and efficiency.
2. Allow for shared savings among health plans, providers, employers, and patients.
3. Develop and test solutions to bundled payment implementation issues.

• IHA has recruited over 20 facility / professional organizations to participate in the program.
• Extensive work completed to rigorously define 6 episode procedures including: knee and hip replacement, knee arthroscopy w/menisectomy, cardiac catheterization, cardiac angioplasty w/stents.
• Data consultants and health plans have worked collaboratively to provide hospital participants with comprehensive data sets critical to episode price setting.
• Contract templates developed to assist health plan/provider negotiations.
• Conducted webinars and developed supporting documents to facilitate gain sharing method design.
• Aetna is "live" at Hoag Hospital, awaiting initial patients.
• Blue Shield of California has signed contracts with Hoag and Monterey Peninsula Surgery Center. Go-live date pending contract approval by California's Department of Managed Healthcare (DMHC).

Challenges:

• Demonstration component of project well behind timeline.
  
• Key barriers include: (1) small sample size in orthopedic procedures within commercial population; (2) lack of capability of commercial payers to adjudicate bundled payments, and (3) decision by some plans to pursue bundled payment outside pilot.
  
• Participants have struggled to negotiate and execute contracts in timely manner.
• Hospitals and physician organizations have had difficulty executing the organizational changes and agreements necessary to support a bundled price bid, given the small numbers of patients for knee and hip replacement at any given facility for any given commercial PPO population. 
• The implementation delays will limit the evaluation period.