Bundled payments: Lessons learned from the ACE demo

With Medicare set to implement a five-year bundled-payment demonstration project for acute-care and post-acute-care services effective Jan. 1, 2012, it's no wonder that a panel discussion by three hospital systems participating in the Medicare Acute Care Episode (ACE) bundled-payment demonstration was a hot ticket even on the final day of last week's "2010 ANI: The Healthcare Finance Conference" held in Las Vegas by the Healthcare Financial Management Association (HFMA).

Two of the three hospital systems created a physician-hospital organization (PHO) to participate in the ACE demonstration. Exempla Healthcare in Denver had the mindset that "you are setting up a health plan," noted Debbie Welle-Powell, vice president of payer strategies and government affairs. "You have a network, clinical protocols," and other requirements that health plans deal with, she said.

"TPA [third-party administrator] functions can be done externally or internally. The underbelly of making this work is administratively being able to pay the claim," said Welle-Powell. However, hospitals should expect some kinks in the initial implementation of bundled payments, added Shannon Fiser, vice president of financial operations for Ardent Health Services in Nashville, Tenn. "It's not perfect yet. For example, 10 percent of claims [in Ardent's ACE demonstration] are getting double payments."

Hospitals in bundled-payment systems can achieve savings on "plannables," particularly "the low-lying fruit" otherwise known as durable medical equipment (e.g., stents), said Welle-Powell. Baptist Health System in San Antonio was able to lower its cost structure by $2.2 million through "the alignment of incentives" with physicians, said Michael Zucker, senior vice president and chief development officer. Baptist Health had "variations of $4,000 to $8,000 for the same construct" in its medical device contracts, he noted. "We let the physicians drive the negotiations with vendors."

After some initial resistance that gain-sharing might cheapen care, physicians have really bought into the concept, said Zucker. As an added bonus, Baptist Health has "seen a tremendous move toward evidence-based medicine," he said. Doctors appreciate that "if you follow the protocol, it is probably going to allow you to get gain-sharing."

To learn more:
- access information about the ACE demonstration here
- visit the HFMA ANI webpage
- review this Kaiser Family Foundation health reform timeline