Bundled payments bad medicine for Medicare seniors

Medicare is changing the way it pays for seniors’ knee and hip replacements. That change could be awfully painful for patients.

The new payment scheme pits doctors and patients against one another by punishing providers for excess costs — and rewarding them for denying access to more expensive, potentially better options for care. What’s more, past experiments with payment reforms like this one have failed to achieve their cost reduction objective.

Medicare launched this new “bundled” payment system in April. The program will pay surgeons, therapists and rehab facilities at about 800 hospitals in 67 metropolitan areas upfront for knee and hip replacement surgeries, as in the past.

But at the end of the year, the feds will calculate the average per-patient cost for each episode of care. If that figure comes in below a preset cap, the hospital gets a bonus. If it exceeds that cap, it faces a penalty.

Medicare officials are calling this move revolutionary. Health and Human Services Secretary Sylvia M. Burwell praised it as “one of the most important steps we will take to improve the quality and value of care for hundreds of thousands of Americans.” The Centers for Medicare and Medicaid Services predict that the model will save $343 million over the next five years.

But previous bundled payment efforts haven’t delivered the savings they promised.

In 2010, several California hospitals tried switching to bundled payments. They failed miserably. Three of the original six insurers withdrew when they concluded that they wouldn’t realize any cost-savings. Six of the eight participating hospitals dropped out after determining that bundled payments wouldn’t improve quality or lower costs. The initiative involved far too much bureaucratic red tape.

Medicare has its own record of failed experiments with bundled payments. In 2009, CMS conducted a demonstration project involving 12 New Jersey hospitals. Ultimately, the program had no effect on costs or quality of care.

The same year, CMS rolled out another bundled payment scheme for cardiac and orthopedic surgery. A 2013 study found some initial savings. But nearly half of them were eaten up by higher levels of spending after patients left the hospital.

There’s reason to believe this new attempt to make bundled payments work will fail as well.

Most hospitals aren’t prepared for them. Participating hospitals gave themselves a readiness score of 55 out of 100 for the new bundled payment system in an online survey. Sixty percent of the hospitals in the regions are likely to face penalties this year under the new system, according to Avalere Health.

To avoid those penalties, hospitals will likely push patients to go home after surgery, even if more expensive post-op care is what they need to fully recover.

Despite the checkered history of bundled payments, federal officials hope that the new knee-and-hip scheme is just the beginning. HHS recently proposed a plan that would pay 20,000 doctors a monthly fee per Medicare patient, plus incentives that the docs might have to repay if they don’t meet “quality and utilization metrics.” An HHS official says that this “model represents the future of health care that we’re striving towards.”

It’s meant as a boast. But patients should take it as a warning. Bundled payments give doctors a strong financial disincentive to treat sicker patients or provide high-cost care, even if it’s necessary.

Federal officials should abandon these misguided bundled payment programs before they devastate patient care further.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

Scroll to Top