Healthcare Happy Meals
You may not think much about it—or even think about it at all—but you probably pay a single price for a package of related products or services every day. Purchased separately, the pieces of the package would set you back more than if you bought them as a set for one price.
I often will order a No. 1 from the breakfast menu at the McDonald’s at Midway Airport in Chicago before an early flight. I pay $5.64. If I ordered an Egg McMuffin, hash browns and Diet Coke separately, it would cost me $6.39. Next time you’re at the hardware store, look around and see how many items you can buy in a packaged set—paint roller, roller cover and pan; nuts and bolts; a new P trap with all the connections for under your kitchen sink.
What we take for granted in our retail lives, though, we rarely see in our health care lives. That is, until now. In yet another example of stealing an idea from more customer-focused industries, so-called “bundled payment” arrangements are gaining traction in health care.
Under a bundled payment arrangement, a provider (such as a hospital or physicians’ group) gathers all the components of a specific type of medical intervention (such as knee replacement surgery) and sells that bundled set of related medical services to a payer (such as a health insurance company or an employer) for a single price per episode of care.
For example, a bundled payment arrangement for knee replacement surgery might include:
- All pre-operative diagnostic test and office visits.
- All care related to the surgery itself, such as facility charges and doctors’ fees.
- All post-surgery care, such as physical therapy and follow-up office visits.
- All costs related to any surgical complications, such as implant rejection and infection.
The Advisory Board Co., a market research firm, is tracking bundled payment arrangements between providers and employers. To date, it’s identified 36 such commercial contracts. Of those, cardiovascular procedures, primarily heart bypass surgery, are the most common interventions covered under a bundled payment arrangement. Close behind are spine and other orthopedic procedures (see chart).
(Find more details on each of the 36 bundled payment contracts here).
Two doctors walk into a Pilates class . . .
In the March edition of Explanation of Benefits, we objectively reported the results of a big analysis of the workplace wellness program at PepsiCo. (You can read that story here.) One prominent doctor says workplace wellness programs aren’t worth it. Another prominent doctor says workplace wellness programs are worth it. Talk about medical variation. Either way, 84 percent of 199 U.S. companies surveyed by Towers Watson said they plan to spend more money on health and productivity programs over the next two years. (You can download the survey results at bit.ly/1dFFzfd.)
For now, bundled payment deals between providers and employers number in the dozens. But before too long, they will number in the hundreds, if not thousands, as providers participating in a government demonstration project will parlay their contracting expertise and begin courting employers with their prix fixe menu of health care services. The demonstration project is called Bundled Payments for Care Improvement (BPCI). Under the program, nearly 500 provider organizations of all kinds are contracting with the government to provide care to Medicare beneficiaries for 48 different types of medical conditions.
So, what’s in all this for employers? We see a number of potential benefits, both financial and clinical.
First, by contracting directly with providers, employers can eliminate the middleman—health insurance carriers—and save money by not paying premiums for specific medical benefits. That assumes a company’s workers all aren’t suddenly having bypass surgeries or babies.
Second, by bundling services for one price, employers should pay less for specific medical cases because they’re not paying separately for each component of those medical cases.
Third, it gives employers more predictability with their medical expenses. They would pay a fixed amount for a fixed package of services over a fixed period rather than paying bills as they come in for individual services over an indefinite period.
Fourth, it promotes continuity and coordination of patient care. Diagnostic imaging facilities must work with doctors who must work with hospitals that must work with home-care agencies to ensure that patients are getting the right care in the right setting at the right time.
Fifth—and the benefit that we think is the most important—it shifts the financial risk to providers, who will be incentivized to provide the best possible care for the lowest possible cost. If they mess up someone’s back surgery, they keep going—and eating the cost—until they fix it. Better for them, patients and employers to do it right the first time.
When will you be ordering from the prix fixe health care menu?
The next time you visit with the CEO of your local hospital, make sure you give him or her a big hug, because they may not be around much longer. The annual hospital CEO turnover rate hit an all-time high of 20 percent in 2013, according to a report released by the American College of Health Care Executives. Possible causes include hospital consolidation, growing complexity of the job and the amount of industry change taking place, the report said. (You can read the report here.)
David Burda (twitter.com/@davidrburda, firstname.lastname@example.org) is editorial director, health care strategies, for MSP-C, where he serves as the chief healthcare content strategist and healthcare subject matter expert.