Last month, I explained the ins and outs of payment bundling and why it could prove highly lucrative for physical therapists—especially considering the US healthcare system’s impending shift to a value-based payment environment. And while bundled payments might sound pretty great in theory, when we get down to brass tacks, the question on everyone’s mind seems to be, “Who’s cutting the payment pie, and how big will my slice be?”
If you’re looking for a simple answer, then I hate to be the bearer of bad news, but you’re not going to find one—in this blog post or anywhere else. Because as is the case with so many healthcare payment and care delivery models, payment bundling is a complex nut to crack. Luckily, I enjoy a good challenge—which is why I’ll do my best to explain the bundled payment distribution process as clearly as possible. Here goes nothing.
According to this article from the Health Care Incentives Improvement Institute, there are two main categories of bundled payment arrangements: prospective and retrospective.
In a prospective payment contract, the health plan establishes a bundled price for a particular episode of care and details the trigger criteria for that episode. When a patient meets those criteria, the insurer issues a lump-sum bundled payment to the existing provider organization (such as an accountable care organization) or—if the providers are independent outside of the bundle—to a “fiscal intermediary, which is in charge of distributing payments to all subcontracted providers,” the article notes.
Over the course of the episode, providers submit claims as they would with any other patient. Individual claims are zeroed out, but they help inform future adjustments to pricing and payment distribution.
At the end of the episode, if the total “billed” amount is less than the bundled price, the providers share the savings. Conversely, if the billed amount exceeds the bundled sum, the providers absorb the loss together.
The key to prospective payment working well in practice is correctly pricing the bundle—and accurately calculating each individual provider’s piece. Additionally, if the volume of patients is not large enough to counteract the risk associated with highly complex “outlier” cases, then the contract should feature some type of risk adjustment to protect participating providers from incurring catastrophic losses.
As the above-cited article points out, this type of payment structure typically is very consumer-friendly, as it allows for a defined patient copay. In other words, the patient knows upfront what his or her out-of-pocket cost will be for the entire episode. However, patient satisfaction hinges on the each provider’s ability to distinguish between patients who are part of a bundled pricing structure and those who are receiving treatment under a traditional fee-for-service (FFS) setup. That means all providers must have mechanisms in place to make that distinction.
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As the name implies, retrospective payment contracts authorize the health plan to distribute payment retrospectively—that is, after the episode is complete. Providers involved in a retrospective bundled payment arrangement also submit FFS claims throughout the course of care. Then, “as claims are received for that patient, for that specific episode, they are ‘debited’ or counted against the established budget—similar to drawing down a bank account.” This ensures that, at the end of the episode, each provider gets his or her fair share of the lump sum. It also makes bundling accessible to a wide array of providers and treatment settings, as it “does not require full delivery system integration, nor does it require health plans to alter their network fee schedules.”
This setup can make payment bundling more attractive—and logistically feasible—to providers who are not already bound by an organizational agreement. “The point of these retrospectively reconciled budgets is that the plan continues to be the financial integrator of the dollars paid as opposed to delegating that responsibility to a single provider who would act as the financial intermediary for all of the other providers engaged in the provision of care for the episode,” the article explains.
Another benefit of retrospective payment contracts: they allow for greater risk control. For example, contracts may designate a “stop-loss” point at which a particularly complex—and thus, more expensive—episode of care would revert back to FFS status, thus relieving the providers from absorbing too great of a financial loss.
A retrospective payment arrangement also helps mitigate potential issues associated with the so-called “patient-leakage” problem, which occurs when a patient decides to seek care from a different provider or organization in the middle of his or her treatment. This could create some pretty nasty reconciliation headaches for providers involved in a prospective payment contract, as they already would have received their full share of the bundle prior to the patient’s early departure.
The Bottom Line
If you’re considering entering into a bundled payment contract, there are a few questions you should ask yourself—and the health plan—before signing on the dotted line. Chief among them:
- Who is responsible for distributing payments to the providers involved in the bundle?
- What other providers are participating in the bundle for this specific episode of care?
- Will payment be distributed prospectively or retrospectively?
- Does the contract include downside risk in addition to upside risk? If so, what risk adjustment provisions are in place?
Would you consider giving bundled payments a shot? Why or why not? Share your thoughts in the comment section below.