Study Finds Potential, Challenges For Bundled Payments

Chart by Health Affairs

It’s almost Black Friday, when people across the country will be doing price comparisons to save money on their holiday gifts. And a new study  shows that reducing price differences among hospitals could provide the U.S. health care system with a similar gift: lower costs.

Researchers reporting in Health Affairs on Monday found that, after adjusting for factors like the severity of illness, Medicare payments to hospitals differ by more than $7,700 for back surgery and $6,900 for hip replacement. In each case, that is a difference of more than 30 percent between the hospitals in the highest-priced group and those in the lowest-priced group. Two other surgeries – coronary artery bypass grafting and colectomy to remove all or part of the colon – had price differences of more than 10 percent between the least- and most-expensive.

“We were surprised by how much variability there was,” said lead author Dr. David Miller, a professor of urology at the University of Michigan Medical School. The study is just the latest to posit that significantly higher costs for some treatments are driving up health care costs overall.

Miller and his colleagues analyzed Medicare payment data from January 2005 through November 2007. Payments were adjusted for factors like the mixture of different kinds of patients at a hospital, the severity of their illnesses and local payment rates for doctors. The payments were then grouped into five levels, from least to most expensive, before cost comparisons were made.

One way to reduce a difference like the $7,700 for back surgery, according to experts, would be to move toward a bundled payment model for health care. Rather than pay providers per procedure, which is known as fee-for-service, providers would be paid per health care episode — for example, the treatment of a heart attack. Several health care systems across the country are currently testing bundled payments, as is the Center for Medicare and Medicaid Services.

Success in reducing the disparity in payment rates among hospitals could depend on just how much bundling is done. Miller’s study found that the greatest factor affecting payment difference among hospitals was post-discharge care. With hip replacement, for example, post-surgery care accounted for 85 percent of the cost difference among hospitals. Medicare’s bundled payment demonstration project includes post-discharge care as an option, but it’s not a requirement for all those participating.

“The data suggests that while the [Medicare bundled payment] program may yield some savings, there may be a better opportunity for savings” if post-discharge care were included, Miller said.

Bundled payments also face several implementation challenges. Another Health Affairs study released Monday evaluated the first few years of three non-Medicare bundling projects. None had actually made a bundled payment as of May 2011, with participants faulting administrative and technical challenges, like not being able to recognize and track a health care episode in order to bundle the payments for it.

Experience thus far shows that making bundled payments a reality is going to take “a really concerted effort” among health care providers, administrators, policymakers and others, said lead author Peter Hussey, a researcher with the RAND Corporation.

While he remains cautiously optimistic about Medicare’s  test of bundled payments, he warns that reducing disparities in cost and deterring inefficient practices won’t be either simple or quick.  “Just because the variability [in Medicare payment] is there doesn’t mean it’s going to be easily removed,” Hussey said.