Navigating bundled payments

Key strategies to reduce costs and improve health care

Alternative payment models (APMs) are on the rise as health care organizations begin implementation of MACRA and look for opportunities to improve care while reducing costs. Do these payment models work, and what lessons can be learned from organizations participating in bundled payments? The Deloitte Center for Health Solutions interviewed health systems, health plans, and other industry stakeholders about how bundling fits into their APM strategy, major challenges, and keys to success.

Key findings

As APMs in health care become more prevalent, the role of bundled payments, also known as episodes of care, is likely to increase. All payers—Medicare, Medicaid, and commercial health plans—are interested in strategies that use incentives to achieve better value; legislation including the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) is encouraging more health care organizations to participate in APMs. Bundled payments can be an organization’s first step into APMs; they are relatively focused, engage specialists, and do not upend a hospital’s fee-for-service (FFS) business model. Furthermore, bundling can be compatible with a population health strategy where savings from reducing post-acute care count towards reducing total cost of care. Health care organizations interested in bundled payments can learn from the experience of early participants.

Medicare has been the major driver of bundled payment initiatives to date; health systems are not reporting a significant degree of bundling activity with commercial health plans or employers, although there is interest, as well as some Medicaid activity. The Centers for Medicare and Medicaid Services Innovation Center’s (CMMI) Bundled Payments for Care Improvement (BPCI) initiative, a voluntary program encompassing a variety of conditions and risk-sharing arrangements, is the first bundling model CMMI has tested and, thus, the model with the most results. Other bundled payments programs, including oncology, cardiac care, and comprehensive care for joint replacement (CJR), have or are just beginning to launch through the US Centers for Medicare and Medicaid Services (CMS) or CMMI.

What have health care organizations learned from their early experiences with the BPCI program? Deloitte conducted 20 interviews with health systems, conveners (organizations that provide technical assistance), technology companies, skilled nursing facilities (SNFs), and health plans participating in bundled payments about their reasons for participating—including how bundling fits into their other APM activities, major challenges, and keys to success.

Although BPCI allows organizations to choose a variety of conditions for bundling, most of the focus has been on hip and knee replacement cases. Most of the interviewed participating systems are:

  • Including BPCI as part of an overall APM strategy. Some organizations are participating in a wide array of APMs—including accountable care organizations (ACOs) and patient-centered medical homes (PCMHs)—while others are starting with bundles.
  • Investing in data and analytics to identify cost-saving opportunities and post-discharge providers who have good patient outcomes and can manage length of stay. Conveners have been particularly helpful to health systems and physician groups getting started with bundled payments.
  • Reducing use of SNFs after orthopedic procedures by sending patients directly home or by decreasing the length of stay at SNFs.
  • Working to improve communication and workflow among diverse care teams, including leveraging physician champions, pharmacists, and care coordinators, to track and set expectations with patients with the goal to prevent re-hospitalization, reduce or eliminate post-acute care stays and improve outcomes.

The most recent BPCI program evaluation confirmed what we heard in the interviews: the greatest savings have resulted from reducing use of post-acute care following joint replacement. The CMS demonstration identified savings of $864 per episode, while maintaining claims-based quality measures and patient experience, and improving on some survey-based quality measures. While additional research is needed, these findings are promising.

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Future of bundled payments

As APMs become more prevalent, though CMS requirements may change, our interviewees agreed that bundled payments are likely here to stay.

Health system considerations:

  • Invest in analytics to identify opportunities to save money. Reduced use of SNF care, coupled with technology investments (either in-house or outsourced to a convener or vendor), were key lessons learned when interviewees were implementing a bundled payments program.
  • Find the best partners. High-quality SNFs willing to work to decrease the length of stay and engaged physicians can help organizations succeed. Engagement across the care team, both internal and external, and with patients was also important to drive change.
  • Bundles can be an important part of an APM strategy—and an especially good way to engage specialists. The focus here is not on reducing overall hospitalizations but on reducing readmissions, transitioning patients to the most appropriate site of care, and reducing length of stay, if appropriate. As APMs continue to increase, health care providers will likely continue to evaluate bundled payments and population health models. These two models are not mutually exclusive and, in fact, some health systems find that bundled payments are an easier step for providers than an ACO.
  • Focus on improving quality. Many of the health systems that we interviewed stressed the care improvement part of BPCI. Bundled payments are not just about savings, though that is a large part of the model’s appeal. Bundling, at its core, is a care transformation project.

Health plan considerations:

Health insurer interest in bundled payments is growing. A few health systems have contracted directly with employers on services, but these are not typically structured like bundled payments; the emphasis is on a more narrowly defined bundle offered to high-quality health systems that agree to take discounts. Plans can define their own bundles, though consistency across CMS and private plan bundles will likely make it easier for health systems to scale bundles. Some Medicaid agencies are committing to increasing APMs through their Medicaid Managed Care contracts; one APM especially relevant to the Medicaid population is labor and delivery bundles. Health plans are intently watching CMS’ initiatives, and will likely follow those that are successful.

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"All of our interviewees saw bundling as a way to increase alignment among the hospital, health system, and clinicians—especially specialists."

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