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Bundled payments might cut hospital costs without reducing quality of care

By Manoj Jain
Special to The Washington Post
Tuesday, March 9, 2010; HE01

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.

Medicare savings in such plans were 10 percent higher than expected. Most came from shorter stays in the hospital and in the intensive care unit and from lower pharmaceutical costs. The mortality rate was also lower in the demonstration hospitals.

Interviews with doctors and hospital managers during this project were revealing.

The hospital staffers were surprised how quickly the physicians were able to reduce the length of stay, substitute generic for brand-name drugs and reduce unnecessary testing. The surgeons worked as a team with nurses to implement standardized protocols and checklists. At one demo hospital, the surgeons resisted any attempts to change their usual patterns; that hospital did not see equivalent reductions in cost.

Patients in the demonstration project expressed greater satisfaction with their hospital experience than patients in non-demonstration project hospitals.

I believe the best way to have doctors and hospitals work efficiently together is to pay them together. The widely admired Mayo Clinic, Geisinger Health System, Kaiser Permanente and Intermountain Health can boast of low-cost and high-quality care because most of these hospitals have salaried physicians, unlike my hospital or most others in America.

Doctors' objections

A majority of U.S. doctors earn their income through fee-for-service payments, and most adamantly oppose a change in this system. Some worry that in a bundled system they would become "slaves to the hospital." One internist at my hospital said, "Who will look after the patient's best interest?" It's true that a hospital-paid doctor might be tempted to put the hospital's best interest first. But professionalism and fairly simple quality-control measures, I believe, could keep performance up to par.

Also, some doctors complain that bundled payment is reminiscent of the capitation fees that many HMOs implemented in their short-lived boom in the 1970s.

But there is a difference. Capitation fees were fixed sums paid to physicians, usually in advance, to provide all the needed care for an individual. It was difficult to adjust these lump sums to the varying level of illness among patients. And some doctors took the payments, then just delivered less care.

Bundling would avoid these pitfalls by paying doctors and hospitals after treatment was complete and by including predetermined quality safeguards -- for example, monitoring rates of in-hospital infections and readmissions due to incomplete treatment.

Bundled payments could be implemented fairly simply for common diagnoses such as pneumonia, heart attack and congestive heart failure. They would be more challenging to use with outpatient physician services, such as those that I offer my HIV patients. Outpatient care often requires multiple doctors, laboratory and radiology services. Bundling payments for all of them is difficult. To move the idea of bundled payments forward, Congress must act.

More than half my income comes from Medicare or Medicaid programs, and I'm not unusual; if Congress requires Medicare to bundle payments, many of us will have to figure out how to work in that system.

A bill that the House passed in November recently mentions pilot programs involving accountable care organizations (ACOs), a structure where hospitals, physicians and others work together and are paid together in bundles for both outpatient and inpatient care. ACOs not only reduce the cost per procedure but also the total number of procedures. The Senate addressed ACO programs in the comprehensive health-care reform bill whose future is currently unclear.

Bundled payments would almost certainly limit my income and, more important, reduce my autonomy. But health care should be about patients, not how doctors want to be paid. Sadly, the payment system is the tail that wags the dog in health care.

Jain is an infectious-disease specialist in Memphis and an adjunct assistant professor at the Rollins School of Public Health at Emory University in Atlanta.

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