10 points on California's failed orthopedic bundled payments

Written by Laura Dyrda | August 05, 2014 | Print  |

Three years after a pilot bundled payment program was implemented at California, a RAND Corporation study shows the program failed to meet its cost-saving goals.

The Integrated Healthcare Association launched the program in 2010 to adopt bundled payments for orthopedic procedures among commercially-insured individuals younger than 65. The program was widely adopted across California to pay physicians and hospitals one fee for an episode of care in an effort to curb healthcare spending. However, several factors contributed to the program's disappointing results.


The Agency for Research and Quality provided support for the study and study authors included Peter S. Hussey of RAND, Kevin J. Bozic, MD, vice chair of the department of orthopedic surgery at the University of California, San Francisco, and lead author Susan Ridgely, a senior policy analyst at RAND.


Here are 10 things to know about the failed bundled payment program:


1. The initial bundled payment project included six of the state's largest health plans, eight hospitals and an independent practice physicians' association. However, three health plans eventually dropped out.


2. Two of the health plans that left the program believed the project's bundled payment model would not lead to a "redesign of care or lower costs" while the third decided bundled payments were incompatible with it's primary business type — maintaining organizations with capitation payments.


3. Only two of the hospitals eventually signed contracts with health plans to use the bundled payments. The hospitals that left the program cited lack of participation and concerns about the time and effort involved in developing a successful bundled payment plan. However, a Strategy& study shows 78 percent of hospitals, 80 percent of payers and 50 percent of physicians find bundled payments appealing.


4. Two ambulatory surgery centers signed bundled payment contracts with one health plan. The ASCs recorded a higher volume of orthopedic surgeries in the bundled payment program — 111 cases — than the hospitals.


5. Despite their willingness to participate in bundled payments and ability to deliver lower costs, the health plans have been slow to contract with surgery centers.


6. Orthopedic surgery volume was extremely low among participating hospitals; just 35 cases were included in three years. The report recommends future bundled payment projects ensure sufficient volume before launching the program. This isn't the experience across the country, however. The Strategy& report also showed more than 80 percent of hospitals with bundled experience saw greater patient engagement, increased alignment with physicians and further administrative cost reduction.


7. Since procedure volume was so low, researchers could not draw conclusions about how bundled payments impact the cost and quality of orthopedic care. "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 Ms. Ridgely, in a news release. "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."


8. The participants also faced delays in regulatory approval of their contracts and a lack of consensus about what types of cases to include in the bundle. Defining which cases belonged in the bundle was difficult and most stakeholders agreed the end result bundle definitions were too narrow to capture enough procedures to make the bundled payment viable.


9. The researchers recommended future bundled payment efforts keep bundle definitions simple. "Despite the many challenges, participants continue to be interested in making bundled payments work," said Ms. Ridgely. "The lessons from this project may help future efforts be more successful."


10 There were also concerns about financial risk for providers — who traditionally haven't managed risk — and researchers recommended future bundled payment projects seek to find additional ways healthcare providers can ease the transition. Beyond the commercial sector, there are currently 105 Medicare providers implementing bundled payments under the Bundled Payment for Care Improvement Initiative and CMS recently announced 4,122 providers will be added to the planning phase.


More articles on bundled payments:
At the forefront of bundled payments & clinical quality: Connecticut Joint Replacement Institute
5 findings on spine surgery bundled payments
Executing bundled payments for orthopedics: The nuts and bolts

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