Bundled payments and process complexity: basic concepts and questions

In an effort to move from either fee-for-service or capitation to a fairer alternative to both patients and hospitals, greater attention may have to be paid to the processes involved, and to whether these may in fact put all stakeholders in a position that is more complex and perhaps harder to navigate than before despite the best intentions.

In this post, I briefly touch upon some aspects of the bundled payments option, which I hope to expand upon later.

First, let’s define a few terms. Fee-for-service is a method of reimbursement whereby billing is done on a per-service-performed basis. The common complaint is that there is no financial incentive for hospitals to do what is strictly necessary for the well-being of the patient, which often leads to higher costs being incurred than is reasonable or fair to patients.  Capitation is at the opposite end of the spectrum, and involves hospitals being reimbursed on a lump-sum basis, regardless of how many necessary services they may provide. This is felt to be potentially unfair to those who provide care to patients with complex illnesses. A related objection here is that patients that have serious chronic and expensive-to-treat conditions may not get all the attention they require if hospitals are feeling financial pressure, say.

Bundled payments sit somewhere in the middle. They presumably stand for a per-episode-of-care approach to reimbursement.  As a side note, I do not want to get into the presumed merits of this approach, about which studies — by RAND Corp., among others — have said that while it should contribute to reducing health care costs appreciably it has yet to provide evidence of better health-related outcomes.

So, how much more complex may bundled payments turn out to be? It would seem reasonable that anyone interested in exploring this approach should carefully research and start by defining what constitutes an episode of care. And, just as importantly, what does not. I say this because, in trying to scope out work, one of the main yet sometimes forgotten things, is to state what does not fall under the purview of a specific initiative or effort. In addition to making it feasible to meet deadlines and budgets, this also prevents people from feeling overwhelmed by the tsunami of changing and tacked-on requirements — what in minimalistic fashion is referred to as ‘scope creep.’  Scope creep sounds more palatable to many than busted budget, missed deadline, unhappy customer, and failed project. Indeed, there is no end of derailed initiatives in process improvement that have their genesis in carelessly developed operational definitions. Know what you are not going to do from the start.

A second thing to do would be to carry out an inventory of all services provided and match these to eventual episodes of care.  This is not as simple as it sounds, as every initiative of this sort meets with unclear and at-odds definitions, resistance, fear, and other human foibles. With episodes defined and constituent services matched to them, the third item might be figuring out the methods, rates, and parties sharing in specific reimbursements. But, what will rates be based on? How will they be set? If not arbitrarily, then how good are the data being used as justification? How complete? If not using all of the data, what sampling approach will be followed?  The question then becomes, is your organization ready and able to do all this? It does not much matter if bundled payments are the overarching framework, the question is do you have reliable data at hand and the skills available to gain the proper insights from it, and to do these tasks efficiently, in addition to the normal ones of healthcare delivery? Furthermore, is there consensus about the data and is there a single, vetted source for it, or does everyone have their own filtered version of reality? Do you have the resources and stamina to sustain this as an ongoing effort, because it is not really a one-off? While none of this is rocket science to grasp, I mention it because in my experience it is not uncommon to see foundational work being simply glossed over or ignored because one is either in a rush and thus unrealistic about time frames  or over-optimistic about one’s own capabilities.

As to the fixing of prices and making costs and outcomes widely available so the public have a firmer basis upon which to base their decisions, several questions come to mind.

  1. Does your organization have the needed infrastructure and data management processes in place to ensure that cost and outcome data are truly reliable and stay that way? Once information is ‘out there’, it can be painful for the leadership to have to reverse itself, as well as counterproductive for the organization as a whole and frustrating for team members.
  2. Who is going to educate the public in order to correctly interpret the newly available data? Who will guide them, and be their ombudsman? More to the point, how will this be done?
  3. Do you personally evaluate all data available before a doctor’s visit, or do you go with the familiar or perhaps a friend’s recommendation?  Not everyone is a data hound. How much effort to put into public data reporting and how to define ROI where increased transparency is concerned?
  4. As data become more inclusive (ex. going from structured alone to both structured and non-structured), definitions will evolve. Who will be there to provide updates and clarify re-definitions to the public? Will this be taken as a positive or add to the confusion? What level of education is needed to understand what is being communicated?
  5. Will the presentation of data have to be simplified to the point where crucial differentiators between providers may have to be relegated to obscure footnotes for the sake of ‘clarity’?
  6. Will there be a concerted effort among organizations to standardize on definitions so that benchmarks and comparisons can be apples-to-apples? To what degree?
  7. How will organizations be prevented from cherry-picking what data they are reporting publicly, given that not all providers are created alike in mission and capabilities?
  8. If ‘mission uniqueness’ is taken into account, won’t every organization claim to be in a category of one?

There are many questions such as this.  In summary, how will all parties involved keep themselves honest while crossing this potential minefield of increased accuracy and disclosure?

As a side note related to transparency, perhaps the processes by which specific data are arrived at should also be made public, since one should be comparing the reasoning, not just the end result, if greater understanding and sustainable change are to be achieved.

If fee-for-service is all black, and capitation is all white so to speak, bundled payments is certainly a gray area. One of its gray aspects is how much more work this approach is going to entail for hospital staff, for example, in setting rates.  As one tries to be the fairest one can be, more qualifiers and exceptions are bound to come up when dealing with rate-setting situations that were addressed before under one category, say.  This requires more work, more discussion, and greater engagement among parties to reach a common ground.  To avoid getting mired down in repetitive inefficiencies, a variety of processes will need to be put in place.  Does your organization have the requisite processes set up and will they be running smoothly before tackling this? Do you have an established methodology for PI? Have you been auditing and scoring yourself against some established quality improvement standard or framework? What about external auditing? I refer in an earlier post to organizational agility, and to processes and data being everybody’s business as all-important enablers. How agile and data-aware are you? Are you using data well and is there true consensus about definitions and results? If not, how much of the dissension is due to fact and how much to other factors?

In raising these questions, I hope to have provided a few elements to think about for those interested in exploring bundled payments or indeed any reimbursement scheme that is concerned with being fairer, because it will probably be more complex as to processes than what has gone on before as well as requiring a higher level of organizational competence to build on than may be assumed at first glance. And because complexity is not a good thing per se, we should be mindful of what Albert Einstein said in his memorable ‘everything should be as simple as it can be, but no simpler.’  He was defending knowledge and calling for accuracy, completeness, but also ‘lightness.’ In exploring any new approach to doing things, we should attempt to do the same and achieve an optimum balance.







Leave a Reply

Your email address will not be published. Required fields are marked *

* Copy This Password *

* Type Or Paste Password Here *