Bundled Payment Matters: The Beth Israel Example

Today’s Managing Health Care Costs Indicator is 10

Paul Levy , the former CEO of Beth Israel Deaconess here in Boston, wrote a few days ago  that the “religious” belief among architects of health care reform that we need to move away from  Fee For Service payment was distracting us from other reforms that could genuinely make health care better.  

He writes:

How much damage is being done and how much time is being lost by our society by a religious belief in a payment scheme that has not been proven and that has many inherent difficulties? 

I beg to differ, and I offer his own Beth Israel as an example. 

There was a report two days ago on WBUR  about a new program by the physician organization there to educate physicians about the prices of various tests they order and procedures their patients undergo.   The primary care physicians, it turns out, are enraged that every time an otolaryngologist performs uses a scope to view a patient’s larynx the cost of an office visit goes up by a factor of 10. 

Why do physicians rarely know the prices of what they order?  There are a multitude of reasons – which include our chaotic pricing system where each payer allows a different amount for the same procedure and high margin procedures cross-subsidize lower-margin services.   (Great article in September’s Harvard Business Review by Michael Porter (Redefining Health Care) and Robert Kaplan (Balanced Scorecard) on the issue which illustrates the folly of how we currently account for health care costs; I’ll have more to say on this article in the coming days). 

What has made the BIDMC physician organization decide to tackle the issue?  I’d argue that this is a result of the BIDMC’s participation in the alternative quality contract with BCBSMA – a payment system that includes a total global budget  - capitation by another name.  When a group of doctors are responsible for overall costs, they start caring about the resource costs of care delivery!

The AQC hasn’t saved any money in its first year , and it’s easy to throw stones.  But sensitizing physicians to prices and costs, who order many of the procedures that drive health care costs up, is certainly a good first step.

By the way, for a longer description of the problems of fee for service, see a series of past posts