Healthcare News & Insights

Bundled payments lowered costs for one health system

The Centers for Medicare & Medicaid Services (CMS) has been reimbursing hundreds of hospitals for joint replacement under a bundled payment model since last year. More evidence is being released concerning just how beneficial bundled payments can be for reducing healthcare costs. 

A study from the University of Pennsylvania, published in JAMA Internal Medicine, used hospital costs and Medicare claims data to find out exactly how one health system fared as an early adopter of bundled payments for hip and knee replacements.

As stated in a news release, Baptist Health System, a five-hospital system in Texas, began participating in a bundled payment model in 2008. Since then, the average cost of hip and knee replacements fell by over 20%, with no harmful effects to the quality of care patients received at each hospital.

Specifically, the average cost of a joint replacement procedure, along with 30 days of post-acute care for each patient, went from $26,785 in 2008 to $21,208 in 2015.

The bulk of the savings were caused by two developments: a 29% decrease in the average cost of an artificial joint for each patient (which came about through discussions with surgeons and manufacturers) and a 27% decline in the average cost of patients’ post-acute care – since post-acute care was bundled into the cost of the procedure.

At Baptist Health System, the severity of patients’ conditions during and after surgery wasn’t negatively impacted by the switch to bundled payments for joint replacement. In fact, the number of extended hospital stays associated with the procedure went down by 67%.

Rewarding success helped

Incentives played a significant role in the success of the bundled payment model, according to researchers. If the cost of each hospital’s care for joint replacement patients fell below the amount Medicare reimbursed the hospital, it would get to keep the difference.

Hospitals would also receive incentives for reducing the use of follow-up care in rehabilitation facilities, which often became pricey.

But, according to researchers, the incentive that made the biggest impact was rewarding individual physicians for their performance. Costs at Baptist Health really started to fall once Medicare’s bundled payment model included incentives for doctors as well.

Takeaway for hospitals

As more hospitals start to prepare for the reality of bundled payments for a variety of services and episodes of care (including a possible maternity care bundle), it’s key to look at where other hospitals have succeeded under bundled payment models.

With Baptist Health, many of the improvements were made without having to significantly overhaul care processes for joint replacement. The facility looked at the cost of its medical devices and found ways to lower their expense, and that’s something hospitals can do right now. Looking for areas like these where your facility can cut costs may help your hospital better adjust to bundled payments.

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