The Truven Health Blog

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By Truven Staff

Why Bundled Payments Should Be on Your Mind

By now, every healthcare provider and payer has heard of the new Centers for Medicare & Medicaid Services (CMS) bundled payment model that will launch on April 1, 2016.

The model will test bundled pricing based on regional averages for total joint replacements (TJRs) for complete episodes of care from the initial hospitalization through 90 days post-discharge. TJRs, or hip and knee replacements, were chosen for this pilot program because they’re not only common surgeries, but also ones known for costs that can vary by more than $15,000 depending on geographic region of the country, according to CMS. The goal of its Comprehensive Care for Joint Replacement Model, then, is to encourage hospitals and post-inpatient providers to work together to improve coordination and lower the costs of Medicare-paid TJRs.

But bundled payments should be on the radar of every provider and payer — not just those involved with Medicare. The fact is, bundled pricing pilots are well underway in private insurers’ financial strategies, too — affecting another large swath of providers along the way.

So it’s on the radar. Now what should you do?

The first step is to figure out where you stand today and analyze how bundled pricing may play out for your business.

For instance, whether you are a payer or a provider, you’ll need to know the current variations by geographic region and by your individual markets for every cost included in the potential bundles — such as inpatient, physician, rehabilitation, readmissions, and more. You’ll want to know how those costs vary by provider type, too — and understand what’s causing those pricing variations.

Providers can use this information to develop ways to close any gaps between their pricing and current market averages. Understanding those gaps may lead to efficiency needs or care quality improvements.

Commercial payers may need to do some predictive modeling on how to structure potential bundled pricing in a way that can reduce costs without affecting patient outcomes.

And both payers and providers may be interested in seeking additional partnerships for episodes of care, or renegotiating existing partnerships.

Bundled pricing is complex. But the benefits could very well outweigh the work necessary to succeed when they become a new industry norm.

At Truven Health, we’re working on a comprehensive research series on bundled pricing for TJRs in the commercially insured population. We’re using simulated bundles based on recent claims data — looking at those cost variations and drivers. We’ll be sharing those in the first quarter of 2016. 

Bob Kelley
Truven Health Senior Research Fellow, Advanced Analytics