Bundled Pricing

Introduction

Bundled Pricing represents the next major paradigm shift in healthcare reimbursement as an attempt to rein in spending.1 The healthcare system in the US is the most expensive in the world, with nearly 18% of GDP utilized and growing, and with fee-for-service payments a significant contributing factor.2 Adding to the problem of expense are several other factors, including inconsistent quality and significant inefficiencies in the system. Bundled payment models, which are also known by several other names, are loosely defined as the reimbursement of multiple healthcare providers (physicians, hospitals, post-acute care providers) based on costs for an episode of care over a specified period of time.1,3 They have been described as middle ground between traditional fee-for-service reimbursement (in which providers are paid for each service rendered to a patient) and capitation (in which providers are paid a "lump sum" per patient regardless of how many services the patient receives).4 The 2010 Patient Protection and Affordable Care Act (PPACA) included multiple provisions and pilot programs (that will be discussed later in detail) to test different models for bundled payment programs, with the overall goals of controlling costs, clinical integration, improving patient care, and improving outcomes.

History

When Medicare was implemented in 1966, it followed the practices of many existing Blue Shield health insurance plans in the way physicians and hospitals were paid. Medicare sought to reflect existing fee patterns in its policies, so charges by physicians for each service were screened for “reasonableness,” a determination that was based on data on prevailing charges in the locality.5 In the 1980s federal policy makers grew concerned about the structure of payment rates based on the reasonable charge approach.

Diagnosis Related Groups (DRGs) have been used in the US since 1983 to determine how much Medicare pays the hospital for each...