Why regional bundled payment projects fizzle

What if you were prepared to hand out bundles of money, but there were no takers?

That is apparently what happened in California as part of a pilot project to explore the use of bundled payments for orthopedic surgeries among patients under the age of 65. It had a prestigious sponsor, the Integrated Healthcare Association, along with the participation of several large hospitals and insurers. And yet it collapsed as surely as a patient without a hip to stand on.

Indeed, so few patients participated in the project that the RAND Corp., which published a study of the project in the August issue of Health Affairs, affirmed "there was not enough information to draw conclusions about how bundled payments affect healthcare quality or costs, the initial goals of the study."

Over the course of three years, the pilot produced just 35 orthopedic cases in hospitals that were subjected to bundled payments--that's less than one case a month. There were another 111 patients who underwent care at ambulatory surgery centers. However, in a state with 36 million people, 146 cases for comparison and contrast are a fraction of what is required for validation.

"Bundled payments have great promise for controlling healthcare costs, but thus far efforts to put the strategy in place on a wider scale have struggled," said Susan Ridgely, a RAND senior policy analyst and the study's lead author, in an announcement. "We've learned lessons from the early setbacks, but more work still needs to be done to realize the potential of this model of payment."

One of the lessons is focusing on a population that would generate a large volume of patients. Apparently there isn't a huge demand for hip replacements among those under the age of 65. And without a huge demand, providers were apparently unwilling to coordinate care to the degree that they would at least break even on accepting a bundled payment.

Calming the squabbling among the players--the hospitals and insurers primarily, but also the participating physicians--would be another enormous stride. Due to infighting, none of them could really come to terms about the parameters of the payment bundles. The health plans wanted broad parameters to include as many patients as possible, which would likely cut their costs for enrollees significantly. By contrast, the providers wanted to narrow the population, which would ensure they would get to keep as much revenue as possible.

As part of the back and forth on the negotiations, the bundle included no risk-adjustment or stop-loss measures included, which meant providers would get paid the same if they operated on a high-risk patient versus a routine case, a parameter that raised concerns about the "unprotected financial risk they would incur," according to the study.

"I think everyone was interested in the concept, but when it got to the nitty-gritty, the dollars, it became clear [the hospitals] had no desire to go forward," one health plan official said. "The hospitals that participated were more there to protect what they had. They weren't looking for the cost savings like we were looking for them."

RAND concluded that there was a lack of trust and transparency between the hospitals and health plans, likely a legacy of prior contract negotiations. Partly as a result, six of the eight hospitals that had originally agreed to participate dropped out, along with two large commercial PPOs.

As a result, the think tank dubbed the pilot the "no risk, no reward" experiment because none of the parties wanted to chance holding the bag for a large chunk of their costs.

What does this say for the future of bundled payments? Other pilots have shown success, so this may have just been a dud. But a gargantuan payer such as Medicare--a financial lifeline for virtually every hospital in the country--obviously holds far more sway in dictating payment bundles and rates than some regional insurers that have agreed to make nice with hospitals for a few years. On a regional basis, hospitals and hospitals systems have far more leverage over commercial insurers.

It's likely that Medicare and Medicaid will have to continue to set the pace in the bundled payment arena for the next few years. When hospitals realize they can make the adjustments without losing money, they become less risk-averse and more willing to fully participate in regional pilot projects. – Ron(@FierceHealth)

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