Healthcare Technology Featured Article

April 05, 2017

Bundled Payments Are Here to Stay: Three Keys to a Successful Evolution



Despite some uncertainty with the new administration, the move toward bundled payments is likely to accelerate.  Bundled payments have demonstrated measurable improvements in clinical care coordination, patient outcomes and financial savings across the care continuum. As a result, it’s widely expected that this emerging trend will go mainstream, expanding from its current limited application in joint replacement to cover a wide range of procedures.

The Benefits of Bundled Payments

To effectively leverage the benefits of a bundled payments program, hospitals, skilled nursing facilities, home health agencies, community-based organizations and others across the care continuum must unite to form cohesive networks that enable collaboration on an unprecedented level. This has many health systems wondering about how and where to start, and how to pay for the technology, logistics and administration of these new networks.

Fortunately, there is mounting evidence that the benefits of bundled payments outweigh the risks—evidence that should have health systems aggressively pursuing opportunity strategy to position themselves and their networks as bundled payment market leaders.

  • Financial incentives. Bundled payments allow hospitals and their network providers to improve operating margins through financial bonuses and reductions in internal operating costs. Some Medicare BPCI programs achieved 90-day care episode cost reductions of over 20 percent, while a larger study examining more than 800 hospitals found that BPCI participants experienced around a $3,000 reduction in the mean cost of a 90-day episode costs in just the first year.
  • Higher referral volumes. Post-acute care (PAC) providers may not qualify for direct bonuses, but they can still benefit financially from higher patient referral volumes. Through demonstrating consistent quality care and positive patient outcomes, PAC providers can position themselves as preferred referral partners within their networks, growing their book of business while reducing traditional sales and marketing costs.
  • Analytical approach to improvements. Effective bundle management necessitates timely and accurate clinical quality and outcome metrics reporting. Data analytics enable health systems to identify which providers are meeting quality standards and allow an unbiased approach to target key areas for improvement. Analytics eliminate subjective judgments and provide a data-based standard for success.
  • Proactive patient-provider matching. Quality metrics enable health systems to identify which post-acute providers consistently deliver the best patient outcomes to make informed referral decisions. For example, data may reveal that a particular joint replacement rehab provider has more success with diabetic patients. Practitioners can refer patients to PAC providers based on the evidence, rather than rely on hunches or historic referral patterns.
  • Improved patient outcomes. With access to quality metrics, combined with the ability to analyze individual patient data, bundle payment networks can proactively identify at-risk population characteristics and create strategic treatment plans based on these factors. More effective use of data has enabled some hospitals to dramatically reduce the average length of inpatient stay for joint replacement while simultaneously reducing utilization of post-acute facilities.

Three Keys to a Successful Transition

Transitioning to a bundled payments program requires health systems and PAC providers to address three critical areas to ensure a smooth evolution.

  1. Enable informed patient choice. For many years, because of anti-kickback legislation and the Stark Law, hospitals have simply handed patients an alphabetized list of post-acute providers and left it up to them to choose one. However, that meant this important decision was often based on very little knowledge and zero quality metrics aside from anecdotal peer recommendations. The Impact Act of 2014 now requires hospitals to consider provider quality, resource utilization and other factors in the discharge planning process, and as a result, hospitals should provide patients with objective data to help them make an informed decision.
  2. Proactively assess patient risk. To succeed in the management of bundle payments, providers need predictive analytics to help anticipate and proactively manage patient risks.  In some situations, complicating risk factors may need to be resolved before proceeding with an elective procedure.  Individualized risk assessments may indicate the need to use inter-operative pathways, such as anesthesia approaches that allow for faster recovery or surgical devices to reduce bleeding risk.  Predictive analytics can also provide guidance on the most appropriate post-acute care setting to achieve both quality outcomes and manage costs.
  3. Drive continuous improvement. It’s quite likely that CMS and other payers will continue to reduce the bundled target price over time. Therefore, bundled payment networks must be committed to a data-driven process of continuous improvement.  Bundled payments provide a way for providers to be rewarded financially, by reducing the cost of care through improving efficiency, quality and patient outcomes. However, only by implementing systems that support economies of quality care will providers remain confident that the improved margins and market share will offset reduction bundled target prices.

While mandatory bundled payments programs are still a relatively small part of the overall market, more widespread implementation is likely. Innovative health systems will embrace bundled payments as a strategic competitive opportunity. Those that can establish effective systems now can put themselves ahead of the curve, while slow movers risk losing their competitive edge and market share among referral partners, payers and consumers.

About the Author

Neil Smiley, a serial entrepreneur with a passion for transforming industries with data-driven solutions, founded Loopback Analytics in 2009 to deliver an advanced Software-as-a-Service platform healthcare providers can use to prevent costly readmissions. The Loopback Analytics team currently works with the largest pharmacy, hospitalist group, health system, payer and senior housing provider in the nation, providing proven intervention solutions that improve clinical outcomes and reduce the total cost of care. Prior to founding Loopback Analytics, Smiley launched Phytel, a population health solutions company that was successfully sold to a VC firm. Smiley began his career as an Accenture consultant and later as a partner with EY, working with Fortune 1000 clients. Smiley holds a computer science degree from Dartmouth College.




Edited by Alicia Young
By Special Guest
Neil Smiley, Founder and CEO, Loopback Analytics ,




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