If You Can Schedule It, You Can Bundle It

Austin Frakt reviewed bundled care recently in the New York Times. He concluded that the federal projects under Medicare are showing promise. Medicare continues with more long-term demonstration projects to demonstrate the value of bundled care.


Most care in our country is provided on a fee-for-service, item-by-item basis. When you have surgery under a conventional health plan, you get bills from the facility, the surgeon, the anesthesiologist and often from the pathologist and radiologist. Your facility bill may have separate lines for your medication, your time in the operation room and recovery room and more. Even your bandages may be an item on your bill.


Bundling is different. You pay for the surgery in one big “bundle” in which everything is included. There’s no more separate bills and no surprise bills. Think of it as a complete surgical package from the time you go into the hospital until you are back home recovering.


Medicare doesn’t set a fixed, unalterable price in advance. The Medicare project has a retrospective twist that allows the hospital and Medicare to square up after the procedure is done, taking into account sometimes unpredictable hospital events and patient characteristics.


What is not as well known is that the private sector is already seeing remarkable results from bundling. Private sector bundling is different; it’s all prospective. Prices are set ahead of time and in certain cases, take risk factors that may influence costs into account before the procedure is done. In addition, providers have the latitude not to do some cases under a bundled arrangement if in their judgment, the costs will be prohibitively high.


At least 4 hospitals in Oklahoma offer a wide array of bundled procedures that many self-funded employers are accessing through programs like The Zero Card. What’s also remarkable is that these 4 hospitals are top-rated (5 stars) by Medicare and are providing care at the lowest prices around. They prove on a daily basis that price does not buy quality.


What do these hospitals have in common? An understanding of their cost structure and a physician staff relationship that promotes efficiency through cooperation. Many hospitals don’t know how much it costs to perform a knee replacement or a gallbladder removal. Their prices are based on what they can negotiate from private sector carriers. (What they get from Medicare and Medicaid under fee-for-service is based on formulas CMS uses to determine reimbursement.)


These bundling hospitals offer  complete surgical packages that start with the pre-op lab and visit with anesthesia. The operating room fee, the hospital bed, the surgeon’s and surgical assistant’s fees, recovery room, drugs, X-rays and routine post-operative follow-up are all included in the bundle.


The savings are very real. An self-funded employer may save $10,000 on a knee replacement compared to the average  it would pay under a PPO contract. Gallbladder removal might be $3,000 less and an MRI scan  $1000 less.


Frakt quotes a Harvard economist who said that “…bundles can certainly be helpful…but the findings for hip and knee replacements may not generalize to other types of care.” That’s true but is not a reason to avoid bundled care. Efforts to reduce healthcare expenditures must start somewhere and need not apply to all healthcare. Indeed, “the best is the enemy of the good”: needing to fix everything shouldn’t be a reason not to fix the obviously broken and easily repaired parts of the healthcare system.


The key to bundling is scheduling: what care can be scheduled and what cannot. Medical and surgical care is to a large degree commodified. Yes, there will be variations in how long any one person spends in the recovery room or how many gauze pads are used during surgery. But a savvy facility interested in bundling can set prices that accommodate these variations such that one price covers almost all cases.


We believe if something can be scheduled, it can be bundled. We know of surgical centers and hospitals that now offer hundreds of bundled procedures. In Oklahoma, known as “ground zero” for the bundling movement. we are fond of saying we bundle everything “from bunions to bypasses.”  Even bundling cancer chemotherapy is now under evaluation as evidence-based guidelines have helped standardize certain therapies.


Bundling providers are resetting the marketplace in many communities. Bundled prices offer savings to employers at a magnitude that allows the employer to pay 100% of costs and offer a $0 copay option to its employees, thus creating a remarkable incentive to the employee to get care at a bundling provider. This virtuous cycle brings more patients to the bundling provider while saving money for the employer and giving the employee a remarkable brand-new benefit.


Indeed, in Oklahoma, some employers offer not just bundled payments but also direct primary care at no cost to the employees. With these benefits, it’s possible for a family that has only non-emergency care in any given year to have no out-of-pocket healthcare costs. Results like these are even leading employers to abandon high-deductible plans that have ruinous patient responsibility and are known to constrain necessary care more than unnecessary care.


As we heard from one patient who had bundled care at a $0 copay, “I didn’t have to choose between my operation and Christmas for my kids.”


It’s understandable that Medicare is treading carefully into this payment transformation. Employers in the private sector are moving faster and already realizing the benefits of bundling.


Stan Schwartz MD FACP


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