Bundled payments might cut hospital costs without reducing quality of care

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By Manoj Jain
Special to The Washington Post
Tuesday, March 9, 2010

A decade and a half ago, when I started my solo practice, I would say to my routine HIV patients, "Let's see you back in three months." I was eager to fill clinic slots; also, because of my lack of experience, I felt safer seeing my patients more often.

Nowadays, with my clinic overbooked for months, I do not take new patients, and I say to my routine HIV patients, "Let's see you back in six months."

Over the years, the guidelines for HIV patients have not changed -- routine follow-ups are still recommended every three to six months -- but my behavior has.

When business is slow or when reimbursement goes down, we doctors have the option of just cranking up the volume of patient visits and procedures. For most doctors, I would argue that the motivation is not really greed. It's a combination of concern for patients, clinic availability and the need to generate additional revenue to offset overhead costs. In nearly all cases, I find, the doctors are making choices that are well within the guidelines of evidence-based medicine.

But I have to admit that since most doctors are paid per visit, doubling the number of visits doubles our income. Practicing with a tilt for maximizing procedures, a cardiologist knows that he can do more cardiac catheterizations and a gastroenterologist knows he can order more endoscopies. These are my colleagues, and at times I catch myself thinking in similar ways.

This approach works because patients, insurance companies and Medicare pay separately for each procedure in the predominant "fee-for-service" model. It's a design flaw of our health-care system, and one of the reasons for spiraling health-care costs. But we can patch this flaw without overhauling the entire system: We can start "bundling" payments.

Time for a change

In the 1980s, when hospital costs were rising at unprecedented rates, Medicare applied the brakes by changing billing rules: Hospital administrators were required to bundle charges into diagnostic related groups, or DRGs.

Under this payment system, which still exists, hospitals receive a single payment for a patient's entire hospital stay: room charges, medicines, physical therapy, blood tests and more. The result was greater efficiency: a drop in cost and length of stay with no decline in quality of care.

Physician charges, however, are not included in the DRG payments, and doctors are still paid separately for each visit they make to a hospital patient.

Most health-policy experts agree that it's time this changed. Here's how it could work: The doctors and the hospital would receive one payment for a given treatment, such as an appendectomy or months of cancer care. Doctors and hospitals would develop a contract stipulating the fees each would receive for specific procedures.

Pilot programs have shown that this model works well.

From 1992 to 1996, Medicare conducted a demonstration project at seven hospitals for patients undergoing heart bypass surgery. The total fees went to the hospitals, which had contractual agreements with the surgeons, the anesthesiologists, the cardiologists and the radiologists. The doctors received fixed payments for their services; some of the demonstration hospitals also gave the doctors a share of their profits.


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