Exploring the Potential Benefits and Drawbacks of Acute-Care and Post-Acute Care Payment Bundling

Posted by Jason Greis on April 3, 2009 under Articles, Whitepapers | Be the First to Comment |  Print

The current Congressional fervor to overhaul the U.S. health care system has some policy makers discussing how to change the way post-acute providers, including LTACHs, home health agencies, skilled nursing facilities, inpatient rehabilitation facilities, and outpatient-based hospital rehabilitation facilities are compensated for treating Medicare beneficiaries.  One solution proposed by President Barack Obama, the Congressional Budget Office, and certain congressional leaders is to bundle payments for acute care and post-acute care services provided within the first thirty days after being discharged from an acute care hospital.  This bundling model has been proposed many times since the early 1980s as a measure to control escalating post-acute care costs, decrease the number of preventable acute-care hospital readmissions, and increase Medicare cost savings but has never received broad support-until now.

 There appears to be growing Administration and congressional backing for the bundled payment model generally.  Critics of the current unbundled system argue that paying post-acute providers a separate payment for medical services creates an inappropriate financial incentive for providing medically unnecessary treatments and extending patients’ lengths of stay in certain post-acute care settings.  Critics also express concern that the current system provides neither “carrots nor sticks” to encourage acute-care providers to prevent some types of otherwise preventable patient readmissions.  A recent article in the New England Journal of Medicine analyzed Medicare claims using the MEDPAR file from October 2003 through December 2005 and found that of 11,855,702 patients, 19.6% of patients were rehospitalized within 30 days, 34.0% were rehospitalized within 90 days and 56.1% were rehospitalized within one year. 

Proponents of bundling believe that the model offers providers an incentive to reduce costs of services and to increase the efficiency with which they provide medical care.  For example, policymakers are considering bundling hospital and physician payments to provide one, fixed payment for some procedures that currently involve separate billable services, such as implanting an artificial hip or providing a course of cancer treatment.  The Centers for Medicare and Medicaid Services (CMS) recently began a pilot program in January 2009 in certain Colorado, New Mexico, Oklahoma, and Texas acute-care hospitals where bundled payments are directed to the hospital and then split between the hospital and physicians based on a negotiated contract.  For the pilot project, CMS negotiated the rates for the bundled payments for procedures, including hip and knee implants and heart bypass surgery.  Depending on the outcome of this pilot, Congress may be prompted to approve a full-scale shift to bundled payments for hospital and physician services.  Senate Finance Committee Chair Max Baucus, a vocal proponent of bundled payment systems, said in his health care reform proposal that bundled payments have the potential to increase efficiency and encourage physicians to better coordinate patient care.

Bundling payments for acute and post-acute care services also appears to be squarely within legislators’ crosshairs.  In 2008 the Congressional Budget Office (CBO) released a report to the House and Senate Committees on the Budget providing an expansive list of options for reducing Federal health care spending.  In its report, the CBO proposed bundling acute-care and post-acute care services into one payment as a way to “reduce federal outlays by an estimated $0.7 billion over the 2010-2014 period and by almost $19 billion over the 2010-2019 period.”  Under the system, acute-care hospitals would receive a bundled payment and would contract with post-acute care providers for their services.  Bundling would require acute-care hospitals to be responsible for all levels of care provided outside the hospital setting, thus requiring them to act like third-party insurers in some respects.  Hospitals would be required to determine how much post-acute care a patient needs and the best ways to provide that care.  They would also be required to make decisions about a patient’s continuing care needs, as well as the appropriateness and quality of care. 

President Obama’s 2010 proposed budget lends further support in favor of the CBO’s proposal, and the Administration appears poised to compel delivery system modifications through aggressive bundled payment policy changes.  The proposed budget suggests that using bundled payments, together with a “combination of incentives and penalties,” should decrease hospital readmission rates for Medicare beneficiaries.

Opponents, however, argue that it would be difficult to craft such a bundled payment system for the following reasons, among others:

• A person’s post-acute care needs may be completely different from the reason for a hospital admission.  In short, it may be difficult for an acute-care hospital to appropriately and accurately determine post-acute care payments based on a hospital diagnosis.
• Providing a fixed payment based on diagnosis creates an inherent financial incentive for acute-care hospitals to underserve the most severely impaired patients.
• Acute-care hospitals would be required to manage costs for all post-acute care services.  As a result, hospitals would take on the role of dominant provider and health insurer in a given area.  Post-acute care providers, especially smaller providers, may not have the organizational muscle to negotiate favorable reimbursement rates with their local acute-care hospital.
• Relying on acute-care hospitals as the focal point for post-acute health care is contrary to the trend toward community and home-based care, which often reduces length of stay.
• Bundling may propel acquisitions of post-acute facilities by acute-care hospitals as they attempt to better manage their spending throughout the post-acute care spectrum.  It may be increasingly common to see ICU, telemetry, medical/surgical, inpatient rehabilitation, LTACH, SNF, and hospice care services provided under a single umbrella organization or located in a single facility-thereby creating the Wal-Mart of healthcare.
• Acute care hospitals would likely have to establish hefty reserves to insure against the possibility that post-acute care payments might exceed their financial means.

 In a year in which legislators appear to have the political appetite to enact substantial healthcare reform, this bundling proposal deserves attention.  Carefully crafted legislation that takes into consideration the reimbursement needs of post-acute care providers could produce an entirely new, workable model.  It will be important, however, for all parties to be represented at the negotiation table since the potential pitfalls associated with the bundled delivery system may have unintended, adverse financial consequences for some post-acute care providers and for the delivery of quality patient care.

 Jason S. Greis
312.849.8217
jgreis@mcguirewoods.com