This post was authored by Joseph G. Cacchione, MD, FACC, chair of the CQC Partners in Quality (PIQ) Subcommittee and chairman of Operations and Strategy for the Cleveland Clinic Heart and Vascular Institute.

The promise of payment reform to rescue the growth in health care expenditures is central to fundamentals of the Affordable Care Act (ACA). A 2010 study by RAND showed that only two things will bend the cost curve:  more financial risk for consumers and provider risk. Provider risk is not a new concept as the 1990’s version of “managed care” transiently muted health care spending increases but there was little attention to quality. The managed care/capitation era of the 1990’s gave way to an era of significant growth in health care spending with predominantly a fee-for-service (FFS) reimbursement system. The proposed novel payment changes ushered in by the reform movement are an expansion of provider risk and now include pay-for-performance, bundle/episode payments and total global payment.

As stated in a Health Affairs article by Robert E. Mechanic and Stuart H. Altman: to be successful, payment reform options must include the following criteria: 1) Potential for reducing unnecessary utilization, 2) Encouraging high quality, 3) Supporting provider integration and 4) Operational feasibility.

The U.S. government has chosen to pilot bundled payment programs. Bundles are one claim for an event of care whereas episodes are time sensitive bundles and include both a hospitalization and some post-acute period.  Several health care organizations entered into pilot agreements around bundling services for a specific diagnosis and in many circumstances episode payment. As part of these bundle pilots, there are required commitments in cost savings to CMS. These pilots are just underway and the results will fuel further CMS programs.  In addition, pilots with bundling using the Prometheus grouper tool are underway. These programs have had limited penetration due to the inability to implement the new payment methodology in what has traditionally been a system that is dominated by FFS claims systems.

The constituents of any payment system include the insurers, patients and providers; and each will have challenges with the conversion away from FFS. The vast majority of health insurers’ systems are designed exclusively for FFS payments and adding in a bundled/episode claim program will be administratively challenging. As an example, related claims that should be inside a bundle may be paid as an individual FFS claim, thus causing rework and duplication. The operations of bundling will require modification of the insurer’s existing work flows and systems. In most cases the providers have little information about utilization patterns once patients leave the acute care setting. Many providers are entering into the pilots described above with CMS and other private insurers based on small amounts of claims data. It is hopeful that the experience they gain will allow them to take on the intended financial risk successfully.

In addition to cost data, there will be the need for longitudinal clinical data registries with outcome measures at timed intervals that are coterminous with the episode period.  This is one of the major differences with the latest iteration of the risk programs compared to the 1990’s version, the addition of quality outcomes.

Last but not least, patients don’t live in episodes nor do they understand how their financial responsibility may be impacted by these new payment methodologies.  Clearly the constituents of the health care system are on a very steep part of the learning curve for the new payment system.  Providers will need to garner far more information about longitudinal cost and quality measures before going at significant risk for bundled payments.

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