Bungled bundling of hospital payments for joint replacements – Pacific Research Institute

Bungled bundling of hospital payments for joint replacements

Federal officials are about to make orthopedic surgery a lot more painful.

The Centers for Medicare and Medicaid Services soon may order hospitals in 75 metropolitan regions to change the way they pay health care providers for knee and hip replacements for seniors on Medicare. Instead of paying for each stage of the procedure separately, CMS will send one lump sum that’s supposed to cover the cost of the entire episode of care.

Advocates claim the change will reduce costs and push doctors to better coordinate care. But this system of “bundling” payments will actually subject seniors to lower-quality care – or deprive them of hip and knee replacements altogether.

CMS should nix this dangerous proposal. Bundled payments give hospitals perverse incentives to skimp on care. After all, the less care they provide, the less they have to spend – and the more of the bundle they can keep as profit.

Conversely, if the cost of care exceeds the amount of the bundle, then the hospital has to take a loss. That could encourage providers to avoid treating vulnerable patients who may be at higher risk of developing expensive complications.

Bundled payments also cripple medical innovation. New medicines and devices tend to be costlier than older ones. But providers will be reluctant to use newer, more expensive products – even if they’re more effective – if they’ll have to absorb the extra cost, as the bundle requires.

That’s bad for patients, who may not be able to access the most cutting-edge treatments and therapies. Consider, for example, a new implant that permits a patient receiving a total knee replacement to keep his anterior cruciate ligament. This device is often more effective and allows patients to rehabilitate more comfortably.

But the new implant also is more expensive. Hospital administrators may push their doctors to hold off on pricey technologies in order to keep costs below the level of the bundled payment.

Defenders of bundled payments claim that they take quality of care and patient satisfaction into account by providing bonuses to providers that score well on such metrics.

But federal officials haven’t laid out in detail how they will measure quality of care. So doctors, hospitals and manufacturers have little idea whether the extra cost of a superior treatment will yield the bonus they would need to justify the expense.

Bundled payments also are bad for patients of the future. Innovative new products will have trouble gaining a foothold in the marketplace. That will discourage investment into the next generation of medical technology.

Moreover, bundled payments won’t actually reduce costs. Hospitals will likely classify patients’ conditions as more severe than they actually are in order to take in the highest bundle possible. Any “savings” will be the product of exaggerated diagnoses.

It should be no surprise, then, that bundled payments have a history of failure.

Take the case of a bundled payment pilot program in California. Two of the six health plans that initially participated withdrew because they were skeptical that it would actually reduce costs or improve care.

And of the eight hospitals originally interested in the pilot, only two followed through. The other six concluded that the intensive measures required to make the switch would exceed its potential benefits.

The California pilot also experienced a host of organizational miscues. The participating parties were unable to come to an agreement on bundle definitions, failed to establish a stable payment system and lacked the technical capability to complete transactions.

And now, CMS wants to take bundled payments nationwide. Unfortunately, most of the hospitals the agency is targeting are ill-equipped for the change. A recent survey found that only 15 percent of health care providers have adequate financial systems in place to support bundled payments.

According to Premier, a hospital consultancy group, the CMS bundled payment proposal is “too much, too fast.”

And it’s too risky for patients. The CMS should reconsider its ill-thought-out bundled payments proposal – or risk jeopardizing the well-being of Medicare’s beneficiaries.

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.

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