nThrive health solutions expert analyzes bundled payments at September AAHAM conference

By nThrive | Posted: 09/25/2018

Bundled Payments

As the industry continues to make the shift to value-based health care, bundled payment models are becoming more prevalent to better manage cost and quality. Barry Zajac, MHSA, product manager for nThrive’s episode of care bundled payment products, explored this shift with attendees at the Fall conference of the American Association of Healthcare Administrative Management (AAHAM), Iowa Hawkeye Chapter, held Sept. 19-21 in Johnston.

In his presentation, “Bundled Payments: How to Realize Savings in the Value-Based Reimbursement World,” Zajac started the discussion by reviewing the overall ranking of health care systems around the world, pointing out that, “the design of our health care system has put the United States at an embarrassingly low ranking in quality even as we rank number one in costs.”

Citing a Commonwealth study, performance was broken into five categories:

  1. Quality: the U.S. fares best on provision and receipt of preventive and patient-centered care
  2. Access: People in the U.S. go without needed health care because of cost more often than people in other countries
  3. Efficiency: U.S. ranks last on indicators of efficiency with poor performance on measures of national health expenditures, administrative costs, administrative hassles, avoidable emergency room use and duplicative medical testing
  4. Equity: The U.S. ranks last on measure of equity: below-average income Americans were much more likely to report not visiting a physician when sick, not getting a recommended test or not filling a prescription and/or skipping doses because of costs
  5. Healthy lives: The U.S. ranks last overall on all three indicators of healthy lives; mortality amenable to medical care, infant mortality and healthy life expectancy at age 60

Zajac emphasized that, while fee-for-service payments do not “cause” costs to escalate, they do contain insufficient incentives to control costs.

Pay for performance

Bundled payment models, including those in play with the MACRA-based MIPS1 and upside-only Accountable Care Organizations (ACOs), aim to control costs while also improving patient solutions and outcomes.

Zajac referenced Michael E. Porter and Elizabeth Olmsted Teisberg from “Redefining Health Care: Creating Value-Based Competition on Results,” in defining value as equaling patient outcomes/cost and noted that “individual services rarely produce health outcomes; it takes a bundle of services delivered over time.”

Ultimately, bundling payment in health care is all about better results, Zajac emphasized, with the “Triple Aim2” evolving to the “Quadruple Aim3,” to include improved population health, lower per capita cost, improved patient education, patient experience and improved clinician experience.

Accepting risk

The reward for achieving better results is shared risk, including:

Business risk:

  1. Sustainability
  2. Revenues > Expenses
  3. Efficient Services

Effectiveness risk:

  1. Effectiveness (outcomes) of care
  2. Producing the desired health solutions

Incidence/prevalence risk:

  1. Demand for services
  2. New and chronic conditions
  3. Health Care insurance risk

Bundled payments require providers to address the business risk plus the effectiveness risk by delivering services for a specific problem, as opposed to addressing the full risk spectrum through full capitation or a full risk ACO.

Defining “Episode of Care”

Along with accepting risk, Zajac emphasized that health care organizations need to have a full grasp on the definition of an episode of care. Citing the seminal article, “Health Care Episodes: Definition, Measurement and Use,” by Hornbrook, Hurtado and Johnson, he identified analytical and payment-oriented episode groupers that have been in the health care market for decades. He also noted that in addition to the several Centers for Medicare and Medicaid Services (CMS) bundled payment programs, there is even more bundled patient payment activity in the commercial space, including direct-to-employer offerings. 

Ultimately, these groups help to define bundles that can be used to create bundled payments, Zajac told his audience. He referenced a Harvard Business Review article that delves into the Employers Centers of Excellence Network (ECN), which was established by Lowe’s, Walmart, McKesson and JetBlue Airways to help employers identify quality providers and negotiate bundled payments.

Creating bundles

Zajac broke down the process of deciding whether and how an organization would enter into a bundled payment arrangement into four steps: Assess, Design, Contract and Workflow. He emphasized that health organizations should explore everything from their vision on what they hope to accomplish, to a thorough analysis on current episode performance, stakeholder readiness and financial performance.

Determining how bundling will be integrated within the revenue cycle and across functional areas and where patient leakage most often occurs, especially when care is sought outside of the network, is also essential to fully assess and manage impact.

Variations in performance

For bundling to be successful, Zajac noted that it is also essential to identify variations in physician performance to identify ways to drive quality improvement in health care, reduce cost and increase physician accountability, providing rewards for achieving quality goals.

He emphasized that, because hospitals are being pushed by payors to assume greater risk for care under bundled payment scenarios, they must recognize the impact post-acute providers have on the performance of the bundles. This underscores the need for a network of preferred providers to achieve coordination, control quality and manage costs.

Active patient tracking is also essential, allowing providers to understand the current performance of the entire care management program, quickly identifying and monitoring high-risk high-cost patients without delay.

Design considerations

Because implementing a bundled payment model can be technology and resource intensive and typically requires a significant shift in values and priorities, Zajac emphasized that health care organizations should thoroughly and realistically assess whether they have the organizational capability to do so internally. Myriad workflow considerations may demand looking beyond internal resources to ensure success.

Zajac concluded by stressing that, “Competencies around data use ranked highest in likelihood of enabling success under value-based payment.” He added that “analytical support (including business intelligence and actuarial), use of consistent care quality measures and ability to monitor adherence to medically recommended regimens at the patient level, all ranked high in enabling organizations to take on risk-based arrangements.”4

Is your health care organization exploring bundled payments and in need of expertise to implement a successful program? Download a copy of the nThrive AAHAM presentation  to learn more. Also view our webinar, “Fee-for-Value: Achieving Financial Improvements through Bundled Payments.”

To speak with an nThrive expert today, call us at 678-323-2500.


1The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA); Merit-based Incentive Payment System (MIPS)

2 D. M. Berwick, T. W. Nolan, J. Whittington; “The Triple Aim: Care, Health, And Cost”, Health Affairs, Volume 27, Number 3, 759-769; Project HOPE–The People-to-People Health Foundation, Inc.; DOI 10.1377/hlthaff.27.3.759; Downloaded August 24, 2018.

3 T. Bodenheimer, C.Sinsky, “From Triple to Quadruple Aim: Care of the Patient Requires Care of the Provider”, Ann Fam Med November/December 2014 vol. 12 no. 6, 573-576

4 HFMA’s Executive Survey: Value-Based Payment Readiness, HFMA, May 2015