Bundling: A Cure For Complicated Health Care Billing?

The days in which hospitals and health care specialists bill insurers or patients directly may be coming to a close. Well, that may be a pipe dream for proponents to the streamlined billing process, but the fee-for-service model appears to be quickly eroding.

Instead, providers’ bills increasingly are being bundled so fees for various services are all together, with a single price that combines the separate fees. This would include, for example, lab tests, pre-operative care, postoperative care and whatever else is needed, where traditionally surgeons, anesthesiologists, emergency doctors and others would bill separately.

The concept has spurred the development of startups to help health care payments to grow. Aver Informatics, which recently received $8.5 million in Series A funding led by Drive Capital and GE Ventures, sells software that it packages into “episodic bundles,” which are designed to simplify the payment process. It then generates a bill for the entire process of treating a health condition, instead of producing a separate charge for each step in the process.

There also are financial perks to help get the process moving. A recent Wall Street Journal report notes that hospitals able to provide the bundled care at their stated price within 120 days after a surgery would get to keep the savings, but if complications occur and the patient requires more services, they must eat the cost.

Collaboration model

Proponents, the Journal noted, contend bundled payments, unlike fee-for-service billing, “provide strong incentives for doctors and hospitals to work together to keep costs low and complications down.” Moreover, “patients and insurers also know upfront what care will cost, which is usually much less than the sum of all those separate bills.”

In a recent OncLive.com report, Peter B. Bach, M.D., director of the Center for Health Policy and Outcomes at Memorial Sloan-Kettering Comprehensive Cancer Center, expressed strong support for bundled payments. “I’ve been pushing for complete bundling, a complete move to episode payment, for some time now,” he said.

In the article, which summarized Bach’s views on how new payment models are challenging the current fee-for-service model for community care cancer centers, Bach said the appetite for payments bundling is very small at the moment. Instead, he said, stakeholders probably would look at shared savings models, similar to accountable care organizations, as the next step in care management.

Concept expanding

The Journal’s report suggests the bundling concept began with heart surgeries and joint replacements. To Bach’s likely delight, the concept is expanding to cancer care and chronic conditions, such as managing a patient’s diabetes.

According to the Journal, some 350 health care organizations are participating in bundled-payment pilots with Medicare that cover 48 health conditions, while various states are testing bundling with Medicaid.

The ability to compete on cost and quality is one of the main hospital benefits of putting a single, predictable price tag on medical procedures as “branded products,” Rob Lazerow, a practice manager at Advisory Board Co., a health care consulting firm, told the Journal.

“You can get some really good knees and hips for $20,000 at some facilities, but some are charging $40,000,” Elaine Daniels, a contract consultant at Blue Cross Blue Shield of North Carolina, said in the report. The Blues plan offers bundled hip and knee replacements for its members at five hospitals, with prices set at about 20% lower than the local average.

Insurer pushback

Agreeing on what a bundle includes and how to price it can play a pivotal role in making the process work. So assessing actual costs along the way is equally important, as is complying with common standards.

Despite bundled payments’ ability to reduce care costs, commercial insurers have been slow to embrace them because it requires them to process claims differently, Lazerow said. Administrative issues, for example, reportedly were behind more than 100 hospitals initially involved in Medicare’s pilot to drop out.

“On paper, all of this looks great, but in reality, it’s very, very hard to do,” Minoo Javanmardian, a Strategy& partner, said in the Journal report. “As promising as they sound, bundled payments pose such challenges as how hospitals should set their prices, manage costs and distribute savings, and convincing doctors to deliver integrated, not isolated, care, she said.