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Bounding into Bundled Payments

March 14, 2011
by Mark Hagland
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California’s IHA Moves to Support Reimbursement Innovations

On February 14, the Oakland, Calif.-based Integrated Healthcare Association announced that it had been awarded a three-year, $2.9-million grant by the federal Agency for Heathcare Research and Quality (AHRQ) to support a demonstration project around bundled episode payments for physicians, hospitals, and other providers, in the private health insurance market in California.

The demonstration project has garnered commitments to participation from several hospitals and medical groups in Northern and Southern California, along with one ambulatory surgery center organization, and four major health plans operating in the state.

Though the demonstration project is still relatively early in its development, much is already being learned, says Weslie Kary, program director, medical technology, for IHA. Kary spoke recently with HCI Editor-in-Chief Mark Hagland regarding the project, and her perceptions of the implications of the lessons learned so far, for bundled-payment arrangements in healthcare more generally. Below are excerpts from that interview.

Healthcare Informatics: How did the program come about? And can you explain how a bundled-payment demonstration project differs from the development of an accountable care organization (ACO)?

Weslie Kary: We are working on procedure-based bundled payments, not on any kind of ACO organization. While bundled payments might be a part of an ACO, we’re working on bundled payments around procedures. So in terms of what’s coming out of healthcare reform, per CMS’s ACE demonstration [the Medicare Acute Care Episode (ACE) Demonstration Project initiated in 2009 by the Centers for Medicare and Medicaid Services, and involving providers from Texas, Oklahoma, New Mexico, and Colorado], we’re working forward on the same concept. About two years ago, CMS started episode payments for something like nine orthopedic procedures and 20-something cardiac procedures, in four states. We proposed working forward on the same general principles.

HCI: What has been learned so far from the CMS ACE Demonstration Project that you want to build on?

Kary: Well, that project is still in process, so there are no results yet. But CMS had found in an earlier cardiac bypass demonstration project that if you could align hospital and physician incentives, there are probably some efficiencies and quality improvement that can occur in the system. So we started a little bit after the ACE demo started; we started in late 2009, to see how this would work in the private sector.

We’re starting with knee and hip replacement procedures. They have discrete beginnings and endings, so they lend themselves to episode-based payment. We’re still working on going live with all of our participants with knee and hip, and we’re starting to look at some cardiac procedures and outpatient knee procedures.

HCI: So not all are live yet?

Kary: That’s correct. One hospital-physician team—that’s [the Newport Beach-based] Hoag Hospital [now an integrated health system, with two hospital facilities and affiliated physician groups], and they have executed at least one contract with a health plan, and possibly two. The contract is with Blue Shield of California, and encompasses Hoag’s affiliated group of orthopedic surgeons.

HCI: What key goals did you set for yourselves when you launched this demonstration project?

Kary: We wanted to see whether it could be done in the private sector, with a real, prospective transfer of risk. This is an idea that has been around for a very long time, but that involves some very significant implementation challenges. If you’re going to take a single payment across a group of providers, there need to be contractual arrangements, and the building of a culture of working together, and then on the health plan side, they have to figure out how to make a single payment for a bundle of services.