Bundled Payment Pilot in California Not Successful, RAND Report Finds

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By Sara Hansard

Aug. 4 — A pilot program testing cost-saving payment reform at hospitals in California failed to meet its goals because of administrative burdens, regulatory uncertainty and disagreements about risk assumptions, according to a study released Aug. 4.

“In spite of a high level of enthusiasm and effort, the pilot did not succeed in its goal to implemented bundled payment for orthopedic procedures across multiple payers and hospital-physician partners,” said the study, “Bundled Payment Fails To Gain A Foothold In California: The Experience of The IHA Bundled Payment Demonstration,” published in the August issue of the journal Health Affairs. The study was conducted by the RAND Corp., a research organization based in Santa Monica, Calif.

So-called bundled payments—one of the leading payment alternatives to traditional fee-for-service authorized by the Affordable Care Act—are fixed payments to health-care providers to treat defined episodes of care for such things as knee replacements. Fixing treatment prices gives providers an incentive to reduce the number and cost of services, according to the study, led by RAND senior policy analyst M. Susan Ridgely.

RAND conducted a previous study of the PROMETHEUS bundled payment pilot program in three communities from 2008 to 2011, which also showed poor results, the report said.

In 2010 the Integrated Healthcare Association (IHA), a stakeholder leadership group in California, and RAND were awarded a three-year, $2.9 million grant from the Department of Health and Human Services' Agency for Healthcare Research and Quality to implement and evaluate bundled payment for orthopedic surgery for commercially insured Californians younger than 65.

Three Insurers Dropped Out

Of the six original health plans in the pilot, two large commercial insurers withdrew because they weren't confident the pilot would lead to care redesign and lower costs and a smaller health maintenance organization decided that bundled payments were incompatible with its capitated contracts, the report said. Six of eight hospitals that had originally indicated an interest dropped out because of a perceived lack of need for the program and concerns about the time and effort involved, the report said. Further, the volume of orthopedic procedures for people younger than 65 in the remaining two hospitals was very low, at only 35 cases in three years, it said.

According to a September 2013 IHA issue brief titled “Bundled Episode-of-Care Payment for Orthopedic Surgery: The Integrated Healthcare Association Initiative,” Anthem Blue Cross, Health Net and United Healthcare dropped out of the pilot.

Four primary factors were responsible for the failure of the pilot, the RAND report said:

• The time required to reach consensus on bundle definitions slowed implementation of the pilot considerably.

• Health plans expected to negotiate price reductions compared with what hospitals were being paid under fee-for-service, while hospitals were concerned about implementation costs and increased financial risk and some sought higher payments than they received under fee-for-service.

• Technical infrastructure for processing claims was lacking.

• There were delays and uncertainty about state regulatory decisions. Both health plans and hospitals were concerned that paying physicians under the bundled initiative might violate California's prohibition on hospitals directly employing physicians.


Strong Conceptual Basis for Bundled Pay

“The IHA pilot might have been dubbed the `no risk, no reward' experiment,” the report said. The IHA wasn't able to spread bundled payment across California markets, patient populations and conditions as initially hoped, it said. However, the demonstration generated substantial expertise in developing episode definitions and other technical aspects of implementation, it said.

The Centers for Medicare & Medicaid Services has experimented with bundled payment with some success, the report said. “There remains a strong conceptual basis to support a role for bundled payment in bending the cost curve in the health care system,” it said. “Still, there is limited evidence that bundled payment will achieve its promise. However, if health plans, hospitals, physician organizations, and other incorporate the hard-won lessons learned from the early pilots, the potential and promise of this payment model may yet be realized.”

To contact the reporter on this story: Sara Hansard in Washington at shansard@bna.com

To contact the editor responsible for this story: Janey Cohen at jcohen@bna.com


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