Bounding into Bundled Payments

And there are a lot of IT issues. And on the provider side, they have to figure out how to bill on a bundled basis, and when they receive the payment, how do they figure out how to distribute the payments to the physicians? When we started this, there were no software products out there to support this; so the model was to do this the same way everybody does transplants, manually, on both the provider and payer sides. I know McKesson and the Trizetto Group now have products that they’ve been developing. It really makes a big difference in terms of the ability to think about episode payments, for there to be software programs that can support this kind of work.

HCI: What has been learned so far?

Kary: That it’s hard. It’s hard, because it involves a culture change on the provider side. In our definition of what an episode is [for purposes of bundling payment], we are saying that related readmissions within 90 days are included within the episode payment. So the idea that you are accountable [for events] within that period, and that you would not charge separately for complications or readmissions; and the idea that you are jointly accountable, among the hospital and physicians, and that they actually need to have a relationship that allows that to occur—in some places, that exists, and in some places, that’s new for the hospitals and physicians.

On the health plan side, we are a facilitative convening organization, as the grant funds our ability to develop things across multiple stakeholder groups; everybody has to fund their own internal development expense. And this is a significant administrative challenge. And the way it operates is that each health plan is executing new contracts or contract amendments with each of these providers; so you look at this and ask how you can bring this to scale on the health plan side.

HCI: In other words, part of the challenge going forward is building such contracts on a broader basis, rather than just executing them one at a time?

Kary: Absolutely. And we only operate in California; but it’s a big market.

HCI: What has the value been of past experience with managed care and capitation in California?

Kary: I think that has been of real value, because we’re talking about the transfer of financial and health risk; so with regard to the ability to even think in terms of accepting that risk, I think we have, if not a unique, then at least an unusual, experience in California. It doesn’t mean that providers don’t nevertheless have to look carefully at what risk they can accept, and what risk can be transferred, what risk should be a part of this contract or not, what risk should be a part of hospital action. But there has been considerable experience with risk.

One of the things we’ve learned is that these procedures are done in many hospitals, so even with multiple health plans participating, the volume is not huge. That’s a positive in terms of experience, but a negative in terms of spreading risk. They can get their toe in the water with a manageable group of patients. But because the numbers are small and they’re looking at how they spread this risk, it’s been a conundrum.

HCI: Have they figured it out yet?

Kary: Well, working to figure it out now. And the number of patients we’re talking about is not going to break any hospital. But we do need to understand what the risks are and how we can manage them, before we move into higher-volume procedures.

HCI: Presumably, they’re using business intelligence tools?

Kary: I know that at least some of them are, and the ones who haven’t come as far as they feel they ought to so far, are looking at how to do that in this context, too, and are looking at which physician behaviors are driving costs in which directions. As part of our project, we’re not insisting that they do gainsharing with the physicians and hospitals, but we are assuming that they will; and that itself is an information systems issue. If they set up gainsharing, how do they set up the metrics to track thing? That’s another whole information infrastructure that they may or may not have contemplated.

HCI: What should readers think when they hear about these developments?