Surprising Fact of the Day: There is No Such Thing as an “Unbundled” Medical Bill
Have you noticed that quite a few of my Health Alerts are devoted to pointing out the obvious? If so, you probably have an ounce or two of common sense. If you do, that makes you somewhat of a rarity in the field of health policy. Bear with me anyway. What follows may come in useful at cocktail parties and other gatherings where you find the need to respond to people who say silly things.
Today’s topic is bundling. “Saving by the Bundle,” was the clever title of Zeke Emanuel’s editorial in the Sunday New York Times. That same day, Health Affairs alerted me to a less elegantly titled study [gated, but with abstract], “Large Variations in Medicare Payments for Surgery Highlight Savings Potential from Bundled Payment Programs.”
Emanuel explains it this way:
[W]e must introduce “bundling” — which, as the name implies, means paying for a patient’s entire care episode rather than every single test and treatment he gets. Imagine, for example, a patient who comes to the hospital for a hip replacement. That patient and his insurer (whether it’s Aetna or Medicare) will be billed separately for the X-rays, laboratory tests, the surgeon’s fee, the anesthesiologist’s fee, the rehabilitation services, the hospital bill and the visits to the doctor after he’s discharged.
In a bundled payment system, all the bills are rolled into one standard hip-replacement charge. The idea is to force all of a patient’s care providers to work together. They have a strong incentive to eliminate unnecessary tests and treatments and use less expensive implants, drugs and devices that don’t compromise quality, and to prevent infections and other complications that could land the patient back in the hospital.
My first reaction was: Darn, why didn’t I think of that. My second reaction was: What would an “unbundled” payment look like? Answer: there aren’t any.
Think of something very basic, like a routine physician’s office visit. Let’s say you get weighed, have your temperature taken, have your blood pressure measured, complete a health history and recite any symptoms that currently afflict you. There, that gives us five separate tasks and the visit has barely gotten underway. If you’re a Medicare patient, does Medicare make five separate payments for each of these activities? Of course not. What about BlueCross? No way. What about employer plans or other insurers? Never. Insurers typically pay one lump sum for a routine physician visit, regardless of what takes place while the patient is there.
Okay, so we’ve learned something very important. Even for the most simple of interactions with the health care system, there is always a “bundled” payment covering a group of services.
Here is something else you need to know. Every producer of every product in every market faces a bundling problem. The issue: what features of the product should be combined and sold as a bundle, and what features should be priced separately? My iPad, for example, comes with all kinds of bundled features. (To tell the truth, I’ve only mastered a small fraction of them.) But there are also a large number of apps I can purchase separately; and each of those is yet another bundle.
So how do the folks at Apple decide what to include in the iPad bundle and what to sell separately? I have no idea. What I do know is that they have an incentive to maximize profit. And economic theory tells me they do that by maximizing the satisfaction consumers get per dollar of purchase.
In health care, as readers of this blog already know, we have systematically suppressed normal market forces. That means we have suppressed the very incentives needed to get the bundles right. So, not surprisingly, the way care is typically bundled is inconsistent with efficient delivery.
The best book I have read on this subject is Michael Porter and Elizabeth Teisberg’s Redefining Health Care, which is now about 5 1/2 years old. But whereas Zeke Emanuel writes as though finding the right bundle requires no thought at all, Porter and Teisberg recognize that it’s a very complicated problem — and certainly not one that is likely to be solved by a garden variety bureaucracy.
It’s worth remembering that the way health care is bundled and paid for today did not come to us when Moses descended from Mount Sinai. All the bundles we are living with are bundles that either Medicare or some other bureaucracy has chosen.
The need, as Porter and Teisberg pointed out, is to let providers be able to repackage and re-price their services — constantly changing their bundles in response to changes in technology, changes in competing products and changes in consumer demand, the way producers in other markets do.
Instead, all the pilot programs underway are designed to impose a bundling system on doctors and hospitals by some outside organization. And according to another Health Affairs study [gated, but with abstract] by researchers from the Rand Corporation and the Harvard School of Public Health this approach is turning out not to work. (See this Wall Street Journal blog post, as well as my own post.)
Bottom line: There is no question that health care today is bundled inefficiently and the result is wasteful Medicare spending. But as we have argued on more than one occasion, the answer to that problem is to allow every doctor and every hospital to approach Medicare and offer to be paid a different way. (See my study here.) Medicare should be willing to allow providers to repackage and re-price their services so long as Medicare’s costs go down and the quality of care for patients goes up.
“Darn, why didn’t I think of that. ” Very funny. 🙂 Surely you could have come up with a “bundling” song video?
Very good insight.
Good post Dr. Goodman.
Excellent analysis. Well done.
John,
You highlight an important issue emerging from the health policy world and leaking into the political debate. As an example, up here in Massachusetts, Governor Patrick has filed a bill that would mandate “alternative payment methods” by 2015. However, our AG has found that the alternative payment methods in use already in the state, are not correlated with lower cost care– or even higher quality care. Even more worrisome is that the bill gives the government power to set prices for specific procedures, or bundles of care.
Josh
Pioneer Institute
When the patient has enough control over the funds bundling occurs in a natural manner that is more suitable to the patient’s needs and pocketbook. That is how the patient weight, temperature, blood pressure, etc. were bundled in the first place. If prices and procedures are rigidly controlled like they are now then what we get is more of the same no matter what we do. This bundling and unbundling has been going on for a long time and things just seem to keep getting worse.
Hi John,
Once again you point out the irrationality of health care pricing. The Patient Physician Alliance conducted a simple test, asking volunteer members who were privately insured to find out how much a colonoscopy would cost them out of pocket and to record the time it took them to get an answer. None were able to get an answer because of the multiple providers involved and because “the usual and customary fee” schedule used by their insurers was “proprietary.” We told them to be very persistent in their quest and to record their time on hold etc. The average time in calling all the providers and the insurance companies getting the non-answer: 22 hours!!
The Patient-Physician Alliance is encouraging real consumer price transparency and real cost saving through its points system for members. This is a free market approach that begins by addressing the dollars patients have to pay out of pocket (so it does not get entangled with health plan pricing). The points flow from patients through the system in a way that does not violate anti-trust or anti-kickback rules. As you know, without altering anti=trust laws or converting all providers to Kaiser-like systems (which some say is the goal of ACO’s), physicians, hospitals and ancillary providers cannot coordinate pricing. So PPA is starting an exchange process by creating a loyalty system that allows patient members to redeem membership points for the permissibly discountable cash portion of their payment to their doctors, hospitals, pharmacies and other providers. The system then gives those providers the opportunity to pool their purchasing power and reduce their real cost by redeeming those points for goods and services they need through a group purchasing system.
This system is built on the inevitable reality that patients will be paying more out of pocket in the future for their health care, and that providers “write off” a lot of those patient cash payments and get nothing for it. The effort is to inject the concept of value into a system that has run on monopoly money for years.
The points are recyclable in the economy, not just one-time discounts or coupons. PPA’s goal is to capture the power of the one in five dollars we spend on health care, and use that power to drive change from the bottom up, not the top down. We can do that community by community if health care providers join with patients as well as with local businesses and their entire communities in adopting the points system as a circulating supplement to cash, so that points can be redeemed throughout the local economy.
The great news is that the technology exists for creating and tracking this system and it is ready to roll out to members community by community nationwide.
As a country, we need desperately need to implement such change now. A great part of the present recession and debt crisis we are facing is caused by our irrational health pricing system. If a “bubble” is defined as a sector of the economy that is not tied to economic reality, health care in America is surely the largest bubble in history, and when it breaks we will all be in it. We are nearing that point. To save our economy, our country and ourselves, we must put our best minds to creating free market solutions that bring us together.
Everybody has a body; so everybody will need care. Despite the rough and tough talk by some politicians, we are not a “let-em-lie-in-the-street-and-bleed” society. We are fundamentally a compassionate people, whose ethic is built on the teaching of the Good Samaritan. With nearly one in five dollars in our GDP going to health care, we have more than enough resources to take care of each other. We squander too much of those resources paying prices that are entirely fictional.To my knowledge there is no organization other than the Patient-Physician Alliance that is trying to harness the health care dollar and create rational pricing.
It is time to act. The coming Supreme Court ruling, the potential implementation of the exchanges and other systemic changes that are coming in the next two years mean that now is the time to get organized. To implement real change there must be an infrastructure and communication channel that binds patients, providers and their communities. If we want free market, non-governmental change we have to create that infrastructure and be prepared to lead an organized effort at real rational reform. PPA is the only national effort I am aware of attempting to create such an organization. With your insights John, we’d love to have you on our economic advisory board. We would welcome all other volunteers as well.
Very best regards,
Charlie Bond
Good article as usual. My experience is having non-compliant patients leave the hospital with instructions and prescriptions, even bottles of medicine in hand, and then having to return to another physician. The reason; non- compliance, and no doctor-patient relationship. I found that if the MD explained what the patient had to do, and offered a follow up appointment with interest in the patient, the compliance rate was higher. Now if the doctor patient relationship or whatever it will be in the future changes, and patients have a health system with or without access, what will the non-compliance and cost results be….with or without “bundling”
John:
Like many others, including the authors of Obamacare, you seem to be an advocate of bundling. I am too. I question, however, your suggestion that each physician be allowed to independently develop his own set of bundles and prices.
In a recent blog you expressed an opinion that Medicare has the daunting task of developing prices for the current 7500 medical service codes, each set of which varies with the region of the country. As you know, this system has been in use for 20 years and is tweeked each year by adding a few new codes, changing a few value units, and determining a new overall multiplier. With the assistance of a readily available code book, as a practicing physician, I knew exactly what I would be reimbursed for each service. Medicare could estimate closely what its total expense would be. The system is very transparent and easily manageable by provider and payor alike.
Although I agree that bundling many of these services and providers may well result in better coordinated care and lower costs, I would argue that some sort of centrally determined structure from which individual pricing could be developed would be preferable to the immediate independence of both structure and price. The latter would be a nightmare for a payor to put in place and manage, especially with the charge that this be budget neutral or better. According to WHO data, there are 1.5 million physicians in the US, each of whom could propose a separate definition of bundles and prices under your proposal. each of whom could join with other providers to do so. The list could be infinite in number and complexity, several times greater than the current CPT list.
In testing a bundle system, I would suggest that one start as simply as possible, first asking providers as a central group to define one set of services to be included in each distinct bundle, eg a hip replacement, and then opening a bidding process on cost per bundled product. If that process successfully matures, providers could be encouraged to propose alternative bundles and prices, working with a benchmark in place. This would be like the current Advantage program, only for bundled services.
I like your idea of placing bundles in the marketplace, but I fear that too many independent variables at once will sink it. I will be interested to see the opinion of others with more experience in business management.
Tom Newsome, MD
The bundling problem is a problem of third-party payment. Anytime there is a third party paying the bills there will always be problems identifying what they are paying for. When consumers pay their own bills, merchants continually test new bundles of goods and services to see which works the best. For their part, consumers experiment by deciding which bundles provide the most value for the money. This type of experimentation on the part of consumers and producers is not really possible under third-party payment. Neither party has an incentive to experiment with different bundles.
John,
Try this one — Repairing the Healthcare System: Where Is The Healthcare Money Going? http://stanleyfeldmdmace.typepad.com/
— Stanley Feld M.D.,FACP,MACE
John–Two points:
1) With the FFS system, at least one knows the services one has received or is getting. With a true bundle, it is possible to skimp on elements of the prototype bundle. In fact, that is the whole point from the government’s point of view. But it is not in the best interests of the patient.
2) Evening up the incentives; bundling with a voucher from the insurer to the patient to buy what he can get with it. Providers want to brag on what he will get and he will want to investigate the particular set of services. There must be an ap for that.
Good topic. Worst case is government trying to even out the prices per bundle, as they will do their best to use averages, which pays some too much and others too little.
Wanda Jones
President
New Century Healthcare Institute.
As John points out in todays Blog, CMS is trying to dictate how Bundling works…again a mistake. The medical professional marketplace must be involved in Bundling decisions, just like physicians must be involved in Care Coordination decisions for Care Coordination to work properly for the benefit of the patients and the system itself. Physicians MUST be involved with Care Coordination and Bundling for these systems to be cost effective.
Furhermore, lets get one thing perfectly clear. Healthcare is a complex system by its very nature. Uneducated Consumers (nonphysicians) cannot hope to ever understand which services should be bundled together! Only the highly trained and experienced healthcare professional and physician, working together, is qualified to bundle healthcare goods and services in a manner that is inherently beneficial to the patient.
However, as Dr. Newsome so aptly pointed out in his comment above, individual physicians and/or individual healthcare professionals making bundling decisions will not work and will cause rampant confusion and ultimately higher cost. Again, physicians working within an “integrated delivery system” or “physician-hospital organization” can make informed and educated decisions about bundling of services and these bundled service prices can be publicized to the patients who use this IDS or PHO. This would be the ideal free market solution for America.
When you hide things, it is easy to bloat a bill, and charge, or overcharge for things that were used, but perhaps not needed. At http://www.MediBid.com it is the doctors who set their own rates and there is complete transparency. There is competition across state lines, and international borders, and generally the costs are about 75% lower than those billed when you have insurance. Knee replacements are done for $7,500, and triple bypass for $14,000 in the US.
It’s not rocket science, it’s competition. Not a foreign concept to those who understand the free market.
I wonder first, if the the several medical specialities involved in any surgery will easily give up their individuality. For example, 40+ years ago, I was in financial administration at two major universities with teaching hospitals. I asked at that time about why the hospital couldn’t bill the patient for the total process and allocate the receipts to the various parties (some pre-arranged formula). The response I got was that, “It’ll never happen.” Well 40 years isn’t ‘forever’ but . . . . . The overhead that could be eliminated is not insignificant. This would be on top of the improvment coming from coordinated care.
Internationally, this bundling is a pretty common occurrence and they are called packages. There are packages for heart surgery, hip replacement surgery, back surgery, plastic surgery, etc. These packages include doctors fees, hospital fees, medical supplies and nursing services. In catering to medical tourists, especially American medical tourists, international hospitals recognize that patients want and need price assurance. It allows patients to evaluate and compare and that leads to transparency. Learn more about international healthcare at http://www.medeguy.com
Ruben Toral (Medeguy)
John,
How about bundling for Primary Health Care as a percent of Premium revenue to include: office care, all testing ordered by Primary Physician, all ancillary services (PT/OT/Speech), meds ordered by any physician, DME, ER/Urgicenters except when hospital admit within 48 hours, and stop-loss protection. Couple this with a gatekeeper referral function for specialists and full transparency of hospital/specialist cost/quality character. Now wouldn’t that be something? I suspect it would immediately reduce the cost of medical care by 25-30% and increase income to Primary Physicians. Think not? I have five years of financials from such a system over 5 years in the early 1990’s. We reveived 130-150% income on billed charges. Its now 67%. No wonder no one wants to do Primary Health Care.
Paul Nelson, M.D.
@ Bob Blanford
Bob Graboyes suggested a song, belatedly, to symbolize Zeke Emanuel’s editorial: “Is That All There Is?”
@ John Archambault
I’m not surprised by the finding in Mass. Bundles selected by governmental bodies usually won’t save any money.
@ AL
Agree. The marketplace (free of third-party payment) naturally chooses efficient bundles.
@ Charlie Bond
I’m not sure I fully understand what you are doing, but it sounds very interesting.
@ Laurence Brody
I agree. Obama Care, ACOs, etc. are all based on the premise that the doctor-patient relationship doesn’t matter.
@ Tom Newsome
I do not favor allowing each physician to choose any bundles he likes — at least to Medicare. I favor allowing all providers to propose ways of re-packaging and re-pricing their services and Medicare should accept so long as the taxpayers save money and the quality of care does not suffer.
@ Stanley Feld
Good editorial.
@ Wanda Jones
I agree with you.
@ Larry Wedekind
I agree with you on CMS. See my response to Dr. Newsome.
@ Ralph
I like MediBid
@ Glenn Smith
I agree totally.
@ Ruben Toral
International prices tend to be package prices because people are paying with cash and that is a natural free market phenomenon.
@ Paul Nelson
Interesting suggestion. Ultimately, I want the bundingly to be determined in a market, free of government or private sector CPT codes.
@ John,
Thanks. The free market can not be artificially suppressed for ever.
It’s interesting how Dr. Emmanuel defines “bundling” as a way to “force” the providers to work together.
When central planners describe how they intend to operationalize their visions, they tend to use violent language because they do not understand that, if left to their own devices and in control of their health dollars, patients would signal providers what they want bundled together and providers would respond.
My car, for example, is an engine bundled with axles, a chassis, windows, radio, et cetera. Who “forced” the suppliers of all these components to assemble them into an automobile? The gnomes at the US Department of Transportation must be working overtime to make this happen!
If Medicare allowed balance billing it could also allow hospitals to charge less. Medicare Supplemental Insurers could offer consumers financial incentives for using providers that charge less than the table of allowances and indemnify the consumer at some level (say $10,000) for use of a higher cost hospital. Insurer provided patient advocates would “grease the skids” as it were, offering information to the consumer (and brokering a market). Medicare would then take cues from the market to set its table of allowances. If we did this then we would see efficient resource allocation, and improvements in price and quality.
@Steven Bassett
I gather from Steven Bassett’s posting that allowing balance billing on Medicare might legally permit hospitals to lower their Medicare rates to individual patients. This would seem moot, however, for it is difficult to imagine that any hospital would do so. Using current rates, hospitals struggle to make a minimal profit on Medicare business and many lose in this market. Only total restructuring of the business model to bundle providers into a a much larger risk unit will alter the monies spent in the hospital portion of that unit. When risk is recognized and shared by everyone involved, there will be an incentive to maximize efficiency across the entire unit, decreasing the utilization of in-patient facilities. The current fee for service system does not encourage that.
Tom Newsome, MD
John;
Bundling is the worst possible scenario. Years ago a similar program was instituted called a PHO. Physician/hospital organization. This was a dismal failure in the large community hospitals, as the doctors felt they were getting screwed as the hospitals seemed to take over the role of paymaster. Unless the program where the hospital or hospital sysstem was the employer, i.e. Johns Hopkins, Cleveland Clinic, Mayo, etc where the is an incentive to be ecuminical with their employees, everyone wins. Also this can predict that the physicians will get a fair shake because they are true partners with their ability to remove Greed from the organization.
Dr Bob Kramer
Dr Newsome & Dr. Kramer:
You both seem to think that hospital costs are given, or fixed. One point of bundling is to disrupt the cost structure. Most discussion of hospital’s costs assumes that third-party payers, including government, should simply set fees based on a “cost plus” model.
Any kind of risk sharing, even the new policy of not paying for “never events” are considered unworkable under this way of thinking. This way of thinking is not characteristic of functioning markets, where costs are driven downwards.
The type of bundling described here is driven by entrepreneurs responding to signals from patients, which cannot happen when third-party payers fix fees. The PHO described by Dr. Kramer was facing payments by third-party payers so, of course, the providers could not bundle in a way that was mutually satisfactory.