Why Bundled Payments Aren’t Working

The New England Journal of Medicine recently ran an article by Clay Ackerly, MD, and David Grabowski, PhD, calling for “Post-Acute Care Reform.”

They use a (presumably) fictional patient to illustrate the problems with the current payment system:

The New England Journal of Medicine recently ran an article by Clay Ackerly, MD, and David Grabowski, PhD, calling for “Post-Acute Care Reform.”

They use a (presumably) fictional patient to illustrate the problems with the current payment system:

Mrs. T. is an 88-year-old woman who lives alone, has a history of congestive heart failure and osteoarthritis, and has traditional fee-for-service Medicare coverage. One day, she was found lethargic and sent to the emergency department, where she was discovered to be in renal failure and was admitted to the hospital for fluids and monitoring. Her hospitalist concluded that she had accidentally overdosed on Lasix (furosemide). On hospital day 2, Mrs. T. was having difficulty ambulating, although her cognition and renal function had improved and she felt “back to her old self” and was eager to go home.

What to do?

The hospitalist had two primary options. He could keep Mrs. T. in the hospital another night, although she was medically stable and had no further diagnostic or medical needs. That would cost the hospital money under Medicare’s system of fixed payments for diagnosis-related groups, but it would give Mrs. T. more time to recover her strength and extend her stay to the 3 days required to qualify her for a stay in a Medicare skilled nursing facility (SNF) if needed. The hospitalist believed this option was wasteful and potentially harmful, in that it placed Mrs. T. at further risk for hospital-acquired conditions. Equally important, it went against her wishes — particularly if the end result was a SNF stay.

Alternatively, the hospitalist could send Mrs. T. home, holding the Lasix to prevent a repetition of the cause of this admission and arranging for a follow-up evaluation by a visiting nurse. Home health agencies are expected to provide an admission visit within 48 hours after discharge, and they receive a fixed payment from Medicare for a 60-day episode of care — a policy that may neither match the needs of a patient requiring prompt, intensive short-term skilled care nor provide agencies with appropriate reimbursement for that intensive care. This option presented a higher risk of falls and further medication errors, but it served the hospital’s interest in limiting lengths of stay and Mrs. T.’s desire to return home.

But neither is very satisfactory. They are not tailored to her particular needs and would likely result in a re-admission to the hospital, according to the article. You see, “Patients’ discharge plans are often made for financial rather than clinical reasons, which contributes to the inefficient use of post-acute care and the high rate of readmissions.”

The authors recommend a bundled payment system in which, “hospitals and post-acute care providers are paid for a fixed “bundle” of services around a hospital episode, including post-hospitalization care.” But, alas, there are “substantial regulatory and operational barriers” that prevent such a system from being instituted.

But before we think about the barriers, perhaps we should take a moment to consider what has been said so far.

We have three conditions that profoundly affect this patient’s treatment:

1. The decisions are being made by a “hospitalist.” This is a doctor who has never seen the patient before entering the hospital and knows nothing about her other than the medical data in her file. We are told she lives alone, but that tells us very little about what she will face when she is discharged. Does she have friends or family members living near by? Are there people who love her and will drop everything to provide care? Does she live in a third-floor walk-up apartment, or a single level home with easy mobility? Does she belong to a church whose members will gladly bring her meals and help her with medications? Is she poor or does she have means with which to hire caregivers? All of these considerations would make a difference in her ability to manage her condition at home, but the hospitalist doesn’t have a clue about any of it.
2. We have a Medicare system that provides a fixed DRG payment for her condition. This is already a “bundled payment” but one that encourages discharge before the patient is ready.
3. We also have a Medicare system that expects home health agencies to “provide an admission visit within 48 hours after discharge, and they receive a fixed payment from Medicare for a 60-day episode of care.” This, too, is already “bundled” into 60-day packages. Plus, what is Mrs. T supposed to do in the 48 hours while she is waiting for a visit?

The authors are correct that this is a messed up system that is unlikely to provide the patient with the care she needs. But it is messed up because of previous attempts to “fix” the system. We have already bundled payments into packages of care and introduced a whole new breed of “caregiver” to coordinate things ― the Hospitalist.

The result has been a clumsy, arbitrary payment system that is blind to the real needs of real life patients.

Before we move on to even greater swell ideas to fix things, perhaps we should consider why the previous swell ideas have failed so miserably.

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