• Changing from A La Carte to Fixed Price

    Changing from A La Carte to Fixed Price

    By Dr. Kenneth Rothaus

    The traditional system by which hospitals and physicians are reimbursed by insurance companies has been on an item by item (or service by service) method. For example, when a patient is admitted to the hospital for a hernia repair, the hospital would bill the patient’s health insurance company separately for tests, the operating room, recover room, medications, etc. The surgeon, anesthesiologist, internist, and consultants would also each send individual bills.  If the patient had to be readmitted because of a complication (e.g., infection, hematoma, etc.), the process would start all over and a new set of bills similar to the first would be sent.  According to the Center for Medicare and Medicaid Services (CMS), in 2014, 400,000 Medicare beneficiaries received hip and knee replacements . The cost of the hospitalization alone was more than 7 billion dollars.  The CMS report notes that the quality and results varied significantly.   The complication rate varied by a factor of 3 from the best performing to the worst performing hospitals.  The associated total costs including recovery were similarly ranging from $16,500 to $33,000.

    CMS’s proposed solution to this variability in quality and the range in costs was to initiate what it called the bundled payment initiative. By this rule, the CMS is holding the hospitals responsible for the care they provide to fee for service Medicare beneficiaries. Under this proposal, the hospital would receive additional monies from Medicare if the quality of care they deliver and their cost control are “strong”.  Alternatively, weaker performing institutions could be liable for repayments to Medicare. This bundled payment initiative is part of an overall cost control and savings initiative by the Federal government to shift away from traditional payment methods.

    Starting today, April 1st, 2016, 800 hospitals in “randomly selected regions”, will be all under the bundled payment initiative for all hip and knee replacements.  Two of the largest cities to be subject to this are Los Angeles and New York. One of the largest expenses in the first 90 days after a hip or knee replacement in the period of rehabilitation.  This varies enormously depending on the facility to which the patient is admitted or if, of course, they can more rapidly be discharged home. New York’s Hospital for Special Surgery (the highest ranked orthopedic hospital in the United States according to US News) has voluntarily participated in a bundled-payment plan for two years.  According to its CEO, Lou Shapiro, patients who are better off going home are sent there. If, however, the patient needs a skilled nursing facility, the hospital will direct them to those facilities that meet the necessary standards for quality and cost control. For the present, other providers such as doctors, physical therapists, and rehabilitation facilities will continued to be paid separately.

    The benefit to Medicare for this type of payment system is clear – cost control and cost savings.  The benefits to the patients are less clear.  Will it result in better care or will it just transfer a burden of care traditionally done in skilled facilities to the home environment?  What do you think?

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