The False Promise of Bundled Payments

We have written a lot here about the false promise of “bundled payments.” See here and here.

Now come two advocates of bundling who are having second thoughts. They are James Caillouette, Surgeon-in-Chief at the Hoag Orthopedic Institute, and James Robinson, economics professor at UC Berkley, who write in Health Affairs that –

As leaders in the Integrated Health Association (IHA) bundled payment initiative, we shared the same hopes, devoted the same energies, and share the same frustrations with the modest results. We feel it is important to emphasize what we consider to be the initiative’s most important design failure: the lack of engagement and alignment on the part of the consumer. No one will ever reform the U.S. health care system without bringing the consumer along and, indeed, placing consumer choice and accountability at the very center of the reform initiative.

They go on –

We were first and the most enthusiastic participant in IHA bundled payment initiative, sending the hospital’s entire C-suite to the founding meeting with the health insurers. We signed more contracts and treated more patients than any other participant. But we never received the volume of new patients necessary to cover our incremental expenses, much less finance a much-desired expansion.

They conclude –

Our policy focus right now, however, is in encouraging the alignment between consumers and providers through reference pricing, travel medicine, quality reporting, and price transparency.

Well, better late than never! These are precisely the remedies that I and NCPA have been advocating for about 20 years now. But the “health policy community” keeps getting distracted by whiz-bang new slogans like ACOs, bundled payments, case management, and the latest — Big Data! None of these are actually new ideas. They are all just repackaging of the same old ideas that have failed in the past. They all involve some smart guys (or committees of smart guys) telling everybody else what to do.

But, maybe there is hope if even Health Affairs is publishing articles about the essential role of empowered and engaged consumers making good decisions.

Comments (8)

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  1. Big Truck Joe says:

    The newly empowered patient shall be engaged in the utilization and cost of his/her own healthcare. I shall call it “Individualized Managed Care (IMC)” and it shall be beautiful !

    • John R. Graham says:

      I think you’ve nailed it: What we need is our own TLA (three-letter acronym). Then we’ll be accepted by the establishment.

  2. Ralph @ MediBid says:

    Bundled payments is not the be all and end all. Sure it gives the ability to shift profit from one line item to a global line item. Primarily what it does is makes it easy on the consumer.
    What continues to be missing from the price fixed model is some really fundamental concepts of competition, and supply/demand.
    At MediBid, doctors set their own prices based on these concepts. This is why

  3. Devon Herrick says:

    In most markets, bundled payments are a means to compete by re-pricing and re-packaging goods or services. Cost-efficiency Is the result of competition. Bundled payments are merely a means to compete to find packages that consumers like at a given price point.

    The point, you cannot create a short-cut and jump to bundled payments and expect the same beneficial result as you would when providers are competing on price.

    • Perry says:

      Well sir, it took longer to remove your gallbladder than we thought, so since you have a bundled price, we won’t sew you up.

  4. Bob Geist says:

    It is one thing to give an insured (capitated fee) population a bundled price for various procedures and quite another to give a bundled price to an individual for services, such as combining the cardiac surgeons fee with the hospital fee for a patent ductus.

    In the first the hospital-medcical staff delivery and insurance business is dealing with populations as an ACO insurance corporation. A foolish position wherein the providers are double agents playing dual roles of profiteering insurance agent and caregiver. Patient beware when the mega HMO corporations or government agency fixes the (allowable) delivery system’s bundled fee.

    In the second instance the providers of services are quoting a fee for a defined set of services in which their is no unprofessional profiteering conflict of interest.

    When power is in the medical market place is once again the hands of millions of families and not in the hands of a few 3rd party corporations or government agencies, paying a fee for a service or for a bundled service will work to not only control medical system costs but also quality of care.

    Good article Greg. Thanks. Bob Geist

    • Greg Scandlen says:

      Thanks, Bob. Yep, there is nothing wrong with bundling per se, but when it is imposed by third party payers it is never nuanced enough to work very well. Like prices generally, there has to be constant flexibility to account for changing circumstances.

      That is the beautiful thing about “prices.” In one single number, we can indicate changes in labor costs, material costs, overhead costs, transportation costs, varying demand, regulatory changes, and new efficiencies. A real price might change from week to week and day to day. Look at the retail price of a gallon of gasoline and think about all the factors that go into it.

      • John R. Graham says:

        Plus, I would suggest it is very difficult for the same provider of previously unbundled services to to change to provide bundled services.

        In a real market, the new bundle of services is usually provided by a new entrant, not an incumbent.

        I echo the argument that the third-party payer is not able to determine what should be bundled and what should not.

        An example I give is radio/CD players in cars versus homes. When you buy a car, the radio/CD player is bundled with the car. When you buy a home, it is not. You go out and buy it separately.

        The folks who sell cars and houses never asked State Farm or Allstate what they thought should be bundled in the offering.