MA Hospitals in a Huff about Bundled Payments

Hospitals are incensed at plans in Massachusetts to move from a fee for service payment system to a bundled payment system according to today’s Boston Globe.   Paul Levy of Beth Israel Deaconess worries that such a move will lock in the high reimbursement of Partners HealthCare (Mass General and Brigham and Womens Hospitals and others);  Ellen Zane of Tufts Medical Center worries that such a change could “kill the industry.”

Should the hospitals be worried?
And if they are worried, is that good?

The goal of moving from fee for service to bundled payments is to provide incentives for better coordinated, less fragmented, and less resource-intensive care. See my previous post about the importance of this transition.  Part One Part Two  Part Three   To the extent that hospitals today benefit financially from more fragmented and resource-intensive care, this move is a real threat.   Adapting Massachusetts hospitals for capitation (or one of its cousins) will take some work – but there are opportunities for hospitals to improve quality and reduce costs.

* Massachusetts consistently ranks in the bottom half of US states for preventable hospitalizations. 
* America’s Health Rankings ranks Massachusetts #29
Commonwealth Fund  ranks Massachusetts #35 for preventable hospitalizations – noting
- 19.8% Medicare readmission rate (#41)
- 29% of those getting home services with an admission during the year (#48)
- The highest Medicare Part A+ Part B  reimbursements per enrollee of any state (#50).
(In fairness, I’m being selective here; Massachusetts’ asthma rate of hospitalization is in the best quartile, and we’re in the top sixth of states for low nursing home admission rate)

Truth is, the problem in Massachusetts is not hospitalizations –  the ambulatory charges rendered by hospitals for outpatient services have been rising at a rapid rate, while hospital inpatient costs have not risen much at all.  We have 2.6 hospital beds per thousand in Massachusetts, compared to a national average of 2.7. .  On the other hand, we have 494 emergency department visits per thousand, compared to a national average of 401. This is despite the fact that we have the largest number of primary care physicians per thousand.

Ellen Zane is right, though; it won’t be easy to transition from fee for service to bundled payment.  Hospitals are already receiving bundled payments (DRGs, otherwise known as diagnostic related groups) for inpatient care.  Implementation of this payment methodology in the early 1980s led to substantially shorter hospitalizations and dramatic innovation in care delivery.  Bundling payments on the ambulatory side can do the same thing if this is implemented carefully and deliberately.

I’m reprinting my suggestions from March about steps we can take to make it more likely that a transition from fee for service will be successful. The entire post is here.

1)      Encourage consolidation of ambulatory practices, so that there are the critical mass of physicians more likely to be able to accept bundled payments.  Current efforts to encourage or even force adoption of electronic medical records has the impact of discouraging solo or small independent practices, for which these systems are usually unaffordable.   Government can do this through differential payment to those providers who have greater infrastructure (which are more likely to be larger practices). 
2)      Not offer “cost of living” increases in fee for service reimbursement, making bundled payment more attractive to providers.
3)      Continue to invest in robust risk adjustment – so that the sickest patients are not harmed by a transition away from fee for service
4)      Fee for service generally increases access, so efforts to move to a bundled system will need to measure impact on access and incorporate incentives to maintain or improve access.
5)      For bundled payment to have a substantial impact on the delivery of care, bundled payment must represent a critical mass of total reimbursement. That’s a challenge, since for many adult physicians Medicare is the largest payer, and there are structural impediments to Medicare offering payment other than fee for service.
6)      To protect patient access, I believe that it’s optimal for bundled payments or capitation to represent less than the entire practice revenue stream. My experience in a multi-specialty group with about half capitation and about half fee for service was excellent – the group did not try to “churn” or increase rate of service because of the large capitated base, but strived to increase access to benefit from fee for service patients.  Patients individually went back and forth between capitated and fee for service plans, so there was no practical way to discriminate.  I don’t know what the optimal mix is, but policy-makers shouldn’t fret about a portion of ambulatory revenue remaining in fee for service.
7)      Any type of bundled payment will need to be a work in progress.  Standardization will be required, but we will need flexibility for bundled payments to change as we gain experience with them.  We will also need to change payments with the advance of medical knowledge.  We wouldn’t want to retain elements that encouraged delivery of certain services by carving them out of a capitation, for instance, if the medical literature revealed that those services did not benefit patients.  
8)      It will be critical to avoid imposing large income losses on physicians immediately.  This will constrain the cost savings possible, but will make it les likely that providers who would be net losers would sabotage the transition.
9)      The new payment system should be simple enough that it can be explained in a paragraph or less.  Payment methodologies that require hundreds of pages of rules are not likely to be transparent.  There is a tradeoff here;  a simple payment system will not include all the different adjustments that many would like.