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-------- Original Message --------
Subject: qotd: Fallacy of global cost containment through "bundled
payments"
Date: Fri, 28 Feb 2014 13:01:46 -0800
From: Don McCanne <don@mccanne.org>
To: Quote-of-the-Day <quote-of-the-day@mccanne.org>
National Institute for Health Care Reform
February 2014
Inpatient Hospital Prices Drive Spending Variation for Episodes of Care
for Privately Insured Patients
By Chapin White, James D. Reschovsky, Amelia M. Bond
When including all care related to a hospitalization — for example, a
knee or hip replacement — the price of the initial inpatient stay
explains almost all of the wide variation from hospital to hospital in
spending on so-called episodes of care, according to a study by
researchers at the former Center for Studying Health System Change (HSC)
based on 2011 claims data for 590,000 active and retired nonelderly
autoworkers and dependents. For example, average spending for
uncomplicated inpatient knee and hip replacements ranged across 36
hospitals from less than $17,500 to $37,000 for an episode of care that
included all services during the inpatient stay and all follow-up care
within 30 days of discharge. The pattern of spending variation for knee
and hip replacements held true for other conditions, with hospital
inpatient price differences accounting for the vast majority of spending
variation rather than differences in spending on physician and other
non-hospital services during and after discharge or spending on
readmissions. Moreover, hospitals' case-mix-adjusted relative spending
per episode for different service lines — for example, orthopedics and
cardiology — tend to be highly correlated with each other. Understanding
why spending for episodes of care varies so much among hospitals can
help private purchasers accurately target ways to control spending. This
study's findings — inpatient prices drive the bulk of episode-spending
variation and hospitals with high spending for one service line tend to
have high spending for other service lines — indicate that private
purchasers can focus on hospitals' overall inpatient price levels rather
than pursue bundled payments for episodes of care or
service-line-specific purchasing strategies.
To Bundle or Not to Bundle...
In Medicare, there is a compelling case for bundled payments — wide
variations in post-acute care use are the main factor behind differences
between high- and low-spending geographic regions and between high- and
low-spending hospitals. Moreover, Medicare patients often have multiple
chronic conditions that are complex to manage. But the results of this
analysis show that the case for bundled hospital payments for the
privately insured is much weaker — post-acute care and other ancillary
services account for a relatively small share of overall spending on
hospitalization episodes, and they account for almost none of the
variation in episode spending from one hospital to another.
Implications for Private Purchasers
It remains to be seen whether, going forward, the tools available to
private purchasers — tiered benefits, reference pricing, and so on — can
counteract hospitals' significant market power. Other more dramatic
interventions, such as state-based hospital rate setting, or offering a
"public option" that uses administered pricing through the state health
insurance exchanges are options, albeit unlikely in most states to gain
traction.
http://www.nihcr.org/Episode-Spending-Variation
****
Comment by Don McCanne, MD
Rather than relying on proven methods of controlling health care costs
through government administered pricing, the Affordable Care Act (ACA)
relies on private sector integration of the health care delivery system
through entities such as accountable care organizations. One of the
mechanisms promoted by ACA is bundled payments - paying a single pre-set
amount for all services associated with a single hospital episode of
care such as a joint replacement. Will bundled payments adequately
control our health care spending?
This study shows that, for private patients, the upper end of the wide
variation in spending between hospitals is driven by high prices which
permeate all of the hospitals' service lines. For those services
amenable to bundling, such as joint replacement, most of the services
provided are related to the specific episode and thus do not vary much
between hospitals. Post-acute care and other ancillary services which
might otherwise be pared back with bundling are such a small part of the
overall services that bundling cannot save money by reducing the volume
of services connected to the episode.
Since it is the high prices of the standard services that are a problem,
attacking only those services that are bundled will not save much since
high prices throughout the rest of the hospital are left undisturbed or
even increased some to offset any price concessions for the bundled
services.
This article mentions that there is a case for bundled payments under
Medicare since these more complex patients have wide variations in acute
and post-acute care, providing more flexibility in controlling the
volume of services. Prices are already controlled through the Medicare
prospective payment system, which, to a limited degree, represents a
form of bundling (think DRGs).
Other nations, even if using private insurers, utilize rigid government
price setting through one form or another. The authors of this report
suggest that state-based hospital rate setting or government
administered pricing would not likely gain traction. Yet "bundling" all
hospital spending through global hospital budgets (like fire or police
department budgets), as part of a single payer system, is precisely what
we need. Let's give it traction.
