Payers and providers are looking to “bundled payments” as the payment reform most likely to deliver cost-savings and drive positive outcomes. Bundled payment generally refers to a lump sum paid to providers for a predefined episode of care. Several pilot projects are under way to test and refine this innovative payment model, initially focusing on a handful of surgical procedures but with an eye toward expanding to other services and chronic conditions. The intent is to reward value, not volume, by providing incentives to providers across settings to coordinate their efforts toward evidence-based care while reducing complications and duplicated services.

Projections have pointed to bundled payment as one of the more promising approaches for controlling healthcare spending, largely by reducing avoidable complications. A 2009 report from The Commonwealth Fund projected that bundling payments for acute care episodes could potentially reduce health expenditures in the United States by as much as $300 billion between 2010 and 2020.¹

In the same year, an estimate from a team at RAND projected that one model of bundled payments for 6 chronic and 4 acute conditions could reduce the national health spending by 5.4% between 2010 and 2019.² More than a decade earlier, in the early 1990s, the Centers for Medicare & Medicaid Services (CMS) initiated its experiment in bundling payments in Medicare for coronary bypass surgery, which showed savings of roughly 10%.³ The question is then, why is the use of bundled payments fairly limited today?

The Implementation Challenge

As a physician participating in that early-1990s Medicare project, I saw firsthand the potential of bundled payments but also the challenges of implementation. Small projects have shown their worth with manual claims processing and reconciliation. However, a program large enough to deliver meaningful impact requires a supporting infrastructure to offset the administrative burden. Bringing a program to scale requires clinical and financial automation, which until recently was not available.

The complexities of bundled payments create “substantial implementation challenges” and “the need for reliable software to automate bundled payment,” according to Robert E. Mechanic, of the Heller School for Social Policy and Management at Brandeis University, and Executive Director of the Health Industry Forum.⁴ Mr Mechanic calls for immediate investments “to develop administratively feasible, economically sustainable, scalable programs,” and describes ongoing development of software to “automatically convert feefor- service claims into episode-based payments—an extremely complex endeavor but one that could greatly reduce insurers’ administrative barriers.”⁴

Our experience has shown that technological innovations provide health plans with the flexibility to manage bundled claims even in the loosely organized networks of physicians and hospitals that characterize the majority of US healthcare delivery systems.

The 4 Key Areas for Technology Support

Our experience in pilot projects with health plans and other payers has led us to define 4 areas of automation for a successful bundled payment program. At a minimum, technology must be able to support health plans (and subsequently providers) with these key activities:

1. Define a care episode and recognize the starting and stopping points (front-end). Defining included and excluded services is probably the single most important determinant of success. This requires payer–provider collaboration to itemize components for every step in the bundle (eg, clinical laboratory, imaging, anesthesia services). The beginning and end of a care episode must be defined and recognizable to the claims payment process (ideally during a care episode preauthorization or registration process), with a signal that a care episode is under way or will start at some future time.

The wide range of possibilities poses a challenge to many systems. Urgent procedures, such as cardiac catheterization for new chest pain, may have a minimum preintervention period, and the starting point may be the surgery itself. Elective surgeries, by contrast, will have a starting point (such as 30 days before a total knee replacement) and a trigger point (decision to initiate a care episode) sometime after the diagnosis, when the decision for surgery is made, and surgery may occur weeks later.

A follow-up period (such as 90 days after surgery) must also be defined. For chronic conditions, such as chronic heart failure, chronic obstructive pulmonary disease, or cancer, the episodes of care will typically be defined as a fixed time interval.