How Payment Bundling Might Work

Last Updated Jul 27, 2009 8:00 AM EDT

As talk of CMS moving toward payment bundling continues, some observers think it's going to be very difficult for physicians and hospitals to become partners, because of physicians' distrust of hospitals. But it's going to be nearly as hard to get physicians to collaborate with each other to reduce hospitalizations and readmissions. A CMS demonstration project that shifts some Medicare money from hospitals to physicians offers some insights in this area.

The goal of CMS' Physician Group Practice (PGP) Demonstration, which began more than four years ago, is to find out how rewarding providers for improved health outcomes and care coordination affects the quality of care. Focusing on diabetes, coronary artery disease and congestive heart failure, the demonstration project shares savings with organizations that save CMS more than 2 percent of its projected spending on Medicare patients who have one of those conditions.

The Geisinger Clinic, one of the 10 large groups participating in the demonistration, failed to reap any rewards for the first two years of the project. But for the third year, it received $1.9 million. While that's less than the amount it has invested in the systems required for quality improvement, Geisinger believes its participation has been worthwhile because it has spurred the group to move in the right direction, says Bruce Hamory, MD, chief medical officer emeritus of the Geisinger Health System, which includes the multispecialty group.

Asked how physicians in general would react to payment bundling, Hamory replies, "It'll be Kubler-Ross's death-and-dying stuff. But that's true for any major change."

The only way for it to succeed, he says, is for physicians to work together and to collaborate with hospitals and other providers. While hospitals' bottom lines would shrink initially because of fewer admissions, he says, in the long run everyone's reimbursement would increase if they were able to share the savings with Medicare. Even if those savings were only 3 or 4 percent, he notes, and CMS paid for cost reductions in excess of 2 percent, the rewards could be very substantial, considering that the average Medicare patient costs the government $8,000 to $10,000 a year.

He presupposes that, instead of a hospital receiving the bundled payment, a physician-hospital organization (PHO) or accountable care organization (ACO) would receive it and divide the money among the providers. "If the people in that PHO or ACO are reasonable and fair to one another, and if they use this as a way to allow for needed changes to happen in the hospital and the medical community, and they are respectful and concerned about their patients, and everyone makes sure that the patient doesn't get hurt in this, bundling could work," he says.

Of course, Geisinger Health System can get its group physicians to support bundling, because they're employed. But another experiment suggests that some private-practice doctors will accept it, as well. In a move that has received national publicity, Geisinger last year stopped charging patients for treating complications related to heart procedures. While its cardiovascular surgeons are employed, some interventional cardiologists in the program are in private practice. Despite the financial risk involved, none has dropped out, notes Hamory.

A regionally dominant health system like Geisinger might be able to get community doctors to play ball on bundling. But, in most parts of the country, health systems are likely to keep hiring more physicians so they're prepared when and if Medicare changes its reimbursement methodology.

  • Ken Terry

    Ken Terry, a former senior editor at Medical Economics Magazine, is the author of the book Rx For Health Care Reform.