A bundle of joy or trouble?

Bundled payments could prove the value of hospitalists or destroy their income, dramatically improve patient care or hurt outcomes, or be a return to capitation or a new way forward.

Depending on whom you ask, bundled payments could prove the value of hospitalists or destroy their income, dramatically improve patient care or hurt outcomes, or be a return to capitation or a new way forward.

Much of the difference of opinion stems from the fact that there are no details with which to support or defeat arguments about the issue. The concept of replacing fee-for-service with bundled payments for hospital admissions may be as hot among health care reformers and policymakers as it is among hospitalists, but it's still very unclear how, when and even if such a change would be made on a national basis.


Locally, some hospital systems—such as Geisinger in Pennsylvania—already offer a form of bundled payment, and other facilities are trying out facets of the concept under current Medicare pilots. Health reform legislation includes funding for expanded experimentation with bundling.

The details of the plans vary but there's a common basic outline. As opposed to the current Medicare system, in which hospitals are paid an amount for treating a patient and physicians—hospitalists as well as specialists—bill separately for their relative value units (RVUs), a bundled system would offer one payment (x dollars for a pneumonia admission, for example) that the hospital and doctors would have to divide among themselves.

An additional possible facet of the system would include a certain amount of time post-discharge (30 days is a commonly cited figure) in the bundle. If patients were readmitted for the same problem or complications of their treatment within that time, there would be no additional payment. The hospital and physicians would have to cover the care under the bundled payment for the original admission.

Obviously, the outline leaves a lot to be filled in. “At this point no one actually knows what bundled payment actually is, so it's extremely difficult to know what the ultimate impact will be,” said Adam D. Singer, ACP Member, CEO of IPC The Hospitalist Company and a member of The Phoenix Group.

The Phoenix Group, a think tank of private hospitalist groups, released a white paper on bundled fees in August. The white paper analyzed some potential consequences of bundling for hospitalists, and concluded that the issue requires caution and study. “We didn't have consensus on whether it's good or bad,” said Dr. Singer.

The pros

Despite the unknowns, some hospitalists have concluded that the likely effects of bundled payments are good.

“The promise of a bundled payment with gainsharing and quality incentives lays a path toward liberating the physician from the hamster wheel of RVUs,” said Amy E. Boutwell, ACP Member, director of strategic improvement policy for the Institute for Healthcare Improvement and a hospitalist at Newton-Wellesley Hospital in Massachusetts.

The hospitalist who blogs under the name Happy Hospitalist is looking forward to that liberation. “Every time I go and round on a patient, I'm forced to document extensive amounts of worthless information that is required only to get paid,” he said. “I can see a bundled payment system getting rid of evaluation and management aspects of fee-for-service and simply paying hospitalists a bundled fee for the care of the patient. I personally think I could probably double or triple the number of patients I see.”

The flaws in the existing fee-for-service model are one of the major arguments for bundling. “The fundamental problem right now is that payment is basically based on piecework,” said hospitalist Eric M. Siegal, ACP Member and chair of the Society of Hospital Medicine's public policy committee. “Although we like to say that we think and care about what happens to our patients after they leave our care, the reality is that once they leave us, we have no accountability.”

A financial incentive for both the physicians and the hospital to prevent readmissions could change that dynamic. “If I knew that I wouldn't get paid for the next 30 days if this patient came back, I suspect there would be a higher urgency in crossing all the T's and increasing the communication between the inpatient and outpatient physicians,” said the Happy Hospitalist.

Even within the hospital, there would be more incentive to communicate. “If you created a bundle, for instance, around hip replacement, you might suddenly find that hospitalists, orthopedic surgeons, physiatrists, rehabilitation facilities and nursing homes would suddenly create a very seamless integrated care package because we were all on the hook for what happens to the patient,” said Dr. Siegal.

Hospitalists' place in the center of this integrated package could make their importance and value even more apparent to hospital administrations. “For many hospitalists, that will be a good opportunity to really sink their teeth into substantive improvement in their hospital,” said Dr. Siegal. “Things that had been heretofore undervalued like care management, coordination of care, managing transitions—things that have few if any dollars attached to them—might become quite valued in a system where those things clearly reduced unnecessary hospitalizations and expenses.”

It's possible that this realignment of dollars could put more of them in the pockets of hospitalists. “Our whole professional endeavor from the very beginning has been to provide better coordinated, efficient care and deliver on the value equation, to improve quality and control cost,” said Robert Young, MD, a member of the Phoenix Group and CEO of Eagle Hospital Physicians, a national hospitalist group headquartered in Georgia. “If the system ends up rewarding those who bring value, then we should do fine.”

The cons

Other hospitalists are not so optimistic. “I believe that bundled fees will not only be a mess to adjudicate and deal with, but at best, hospitalists are going to be working hard to prove the value of the money they're already getting. A few might get more, but I believe most will get less,” said Dr. Singer.

Dr. Young also had concerns. “The potential downside is what historically I've seen in these kinds of systems … You get rewarded early on for your efficiencies and then each year or two, that bar that you have to jump over to get the reward gets higher.”

Although the majority of programs are already receiving hospital subsidies, hospitalists are also nervous about the entirety of their incomes being controlled by the hospital. “There is concern and rightfully so that the hospitals will make all the decisions and doctors will have little say in how the payments are distributed,” said Neil Kirschner, PhD, senior associate in ACP's department of regulatory and insurer affairs.

If hospitals were deciding how to split the money, payment to specialists could take precedence over hospitalists, speculated Dr. Singer. “Do they have preference since they're the ones referring patients to the hospital?”

At the very least, the new system will change the relationship between many physicians and their hospitals. “It is going to force you to affiliate,” said Dr. Siegal. “If you're not quite sure you trust your hospital's administration, bundling could really be seen as a threat.”

There's also the risk that bundling could threaten, rather than improve, patient care. “Physicians may feel that they are no longer in a position to act as a check,” said Dr. Siegal. “Good management could start tilting over into actual restriction of necessary care for people who need it, in the name of cost containment.”

The experts agreed that the effects of the system on hospitalists would likely depend on the setting where they work, but they disagreed on the specifics. “If you're a hospitalist company and you have little or no financial relationship with the hospital in which you work, bundling is probably pretty scary,” said Dr. Siegal. “If you're hospital-employed and a substantial amount of your salary comes through the hospital and you are financially supported with some degree of subsidy, bundling will probably be perceived as an opportunity.”

But Dr. Young and Dr. Singer, who run private groups, saw it the opposite way. “If this whole system is designed to reward the people that do the best, then I would suggest that groups like mine and others in the Phoenix Group, where this is the total focus of what we do, should be better positioned to deliver the value than one owned by one hospital would,” said Dr. Young.

Bundling in action

The only resolution to their debate will probably come when bundling is put into practice. There are hospitals already doing something like bundling, and the most well-known of them—Geisinger, Kaiser, Mayo Clinic—are large, highly integrated systems with mostly employed physicians.

But trials of the model are happening on a wider basis already, according to Dr. Boutwell. “I'm hearing about accountable care organizations popping up. I'm aware of global payment contracts that are available to cover the entire continuum of care for patients. This is already being experimented with and done in small pockets.”

One particular trial is likely to have a major impact on the implementation of bundled payments. CMS’ Acute Care Episode (ACE) demonstration started earlier this year at five hospitals, including Baptist Health System in San Antonio, Texas, where Felix Aguirre, MD, practices.

The bundling project applies to certain cardiac and orthopedic procedural diagnoses. Hospitalists participate as comanagers on the cases, but they are paid under the normal Medicare system. “The only physician that gets to benefit from any of the cost savings or gainsharing is the physician responsible for the primary DRG,” explained Dr. Aguirre, who is vice president of medical affairs for IPC The Hospitalist Company.

Although it's too early to gather any data from the project, Dr. Aguirre has seen some changes. “Orthopedists and cardiologists didn't have as much risk in the process before,” he said. “They have ramped up their case management so that [the patients] can be streamlined and moved along.”

The ACE project is likely only the beginning of government experimentation with bundling. Proposed health reform legislation includes additional bundling demonstrations, which could eventually expand into pilots. “I would see these things happening in the next five years or so,” said Dr. Kirschner.

The possibility of speedy implementation is one of the things that make some hospitalists nervous about bundled payments. “What I'm afraid of is there may be legislation that puts bundled payments into effect before the whole experiment is completed and fully evaluated,” said Dr. Aguirre.

Even the strongest advocates of bundling see the need for gradual change. “There will have to be a transition time to account for the fact that we have such a fragmented care delivery system,” said Dr. Boutwell. “I'm sure bundled payments will not happen with a flick of a switch on Jan. 1, 2010.”

More questions than answers

Long before the lights go on in the bundling business, hospitalist leaders hope to get some more data to inform their positions on the issue.

The Phoenix Group white paper called for expanding demonstrations to include post-acute care (which the ACE project currently does not) and continuing to pay physicians directly from Medicare, not through a hospital. The group also recommended exploration of changes to the fee-for-service system to make it more DRG-specific. (Dr. Singer favors the idea of a hospitalist DRG that would bundle all of a hospitalist's services into one payment, but not combine it with the hospital's charge.)

As chair of the public policy committee, Dr. Siegal has been a leader on this issue at SHM. “We are intrigued by the potential that bundling could bring. We think it is absolutely worth further exploration. We strongly encourage robust pilots and demonstration projects to figure out what works and what doesn't,” he said.

Bundling has the potential to be compatible with ACP's vision for payment reform, according to Dr. Kirschner. “The College has taken the position that fee-for-service is, as public policy, a bad model of care because it emphasizes services as opposed to emphasizing such things as quality and efficiency. In general, the College is supportive of these attempts to bundle, for example, in the medical home.”

He added, “With that said, it still brings up a lot of questions. What services should be bundled? What providers should you involve within the bundle? How should payment be divided among the providers?”

Dr. Singer could add several more questions to the list. “Can any willing provider participate? How are the rates set? How are the laws going to be changed for gainsharing? Does every single hospital negotiate with every single doctor?”

“If the hospital starts losing money, who will shoulder the burden?” asked Dr. Aguirre.

Even once there are answers to all these questions about specifics of the plan, there will be unknowns about the effects of a bundled payment system, Dr. Siegal noted. “Bundling is a paradigm shift in the way that we pay, and the question is going to be, ‘How will that change behaviors?’ It could be better and it could be worse; we're not entirely sure. It might be better in some environments, and it might be worse in some.”