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Where Bundled-Payment Contracting is Headed (Hint: Super-IT Needed)

July 7, 2014
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Suzanne Delbanco’s new Health Affairs blog about bundled payment mechanisms implicitly calls for a whole new level of integrated health IT

Suzanne Delbanco, Ph.D., executive director of the San Francisco-based Catalyst for Payment Reform, has just penned a Health Affairs blog about bundled payment mechanisms in U.S. healthcare. The blog provides information on the current state of bundled payment contracting in the U.S. (she notes, for example, that “just 1.6 percent of payments flowed through bundled payment models” in the private health insurance market, as of last year), and her perspectives on where bundled payments are at right now and where they’re going.

Here’s what I find particularly interesting in her blog: she writes that “Today, most bundled payment models are ‘retrospective,’ meaning payers pay providers after they have delivered the care. From a transitional perspective,” she writes, “this makes it possible to build bundled payment on a fee-for-service base, ‘trueing up’ when the episode is over. This means that inflationary incentives inherent in fee-for-service are part of the mix. In the future, it is likely that we will pay providers their bundled payments prospectively, making upward or downward adjustments at the end for outliers, quality lapses, and other factors.” Interesting!

And Delbanco is someone who knows whereof she speaks. Prior to July 2010, when she joined Catalyst for Payment Reform, she had had a variety of positions, most notably a seven-year stint from 2000 to 2007 as CEO lf The Leapfrog Group; as well as postings at the Pacific Business Group on Health and the Kaiser Family Foundation. In other words, she’s been in this payer-provider thoughtspace for a long time.

But obviously, if the payment system around bundled payments shifts to prospective payment, that shift will absolutely ratchet up the challenges for providers. And healthcare IT leaders will need to be at the forefront in facilitating data management and analysis among their colleagues, in order to make bundled payment contracting work.

As it is, some are questioning the degree to which bundled-payment contracting can add value to the healthcare system.

She cites this note from a recent Rand study: “Savings will depend on the design of the payment system, the particular services that are bundled, and the performance of the participating system before implementation.”  As Delbanco adds in her own words, “Clearly some types of care, such as a joint replacement, or labor and delivery, lend themselves to the model better than others because they are common and have easily identifiable start and end points.”

Delbanco goes on to add, “Not every provider system is well-equipped to participate in a bundled payment arrangement. Some providers have experience with taking full financial risk and can engage in that approach right away. These providers may be more centralized and vertically integrated, and therefore capable of managing a full episode of care in a coordinated fashion. Where providers are decentralized, it may work best to start with a shared savings payment arrangement and work toward bundled payment as the delivery and coordination of care becomes more seamless.” In any case, as anyone currently working in the bundled-payment contracting arena knows, this is a long road, just as the accountable care organization (ACO) and patient-centered medical home (PCMH) roads are long ones, with no “silver bullet,” “add water and stir” templates to follow for immediate success.


Still, there are those fierce partisans who believe that bundled-payment contracting will revolutionize healthcare quality and value, among them Francois de Brantes of the Newtown, Conn.-based Health Care Incentives Improvement Institute. As De Brantes told me in March, “[T]he reason we have been so engaged around bundles, is because ultimately, the bundled represents a consumable product. I have X; that’s what I need help or care for, and that’s what I’m paying a portion of the total cost of care for. If I have diabetes, I care about diabetes. If I have cancer, I care about cancer. If I busted my knee, I care about knee care. Everything else to me as a consumer is abstract. The advantage of bundles is that bundling solves that problem. So I busted my knee, and guess what? There’s a bundle for knee repair. I have diabetes; there’s a bundle that can encompass my diabetes-related care. Once you set it up that way, you can set up true market competition.” And, he added, “Because if I’m a consumer and I have choice, I can now decide where I want to go, and can figure out how much of my out-of-pocket can be consumed by Bundle A versus Bundle B, and I have choice.”

But making bundled-payment contracting work, particularly if such contracting inevitably ends up shifting from retrospective to prospective, will require tremendously sophisticated, useful information systems, systems that will need to marry clinical, financial and claims data (where have we heard that before?), and to be able to help their leaders execute on very sophisticated data analytics/big data.

So inevitably, as with every other important emerging payment/delivery mechanism or model in healthcare, the proof will be in the data pudding. And healthcare IT leaders already know they’re facing long paths in all these areas. Should the basis on which bundled payments are made shift, the bundled-payment contracting path will likely be looking more like an uphill climb than ever.