Latest on Provider "Bundling"

From the Dallas Morning News:

In one closely watched test beginning in August, several of California's best-known health care providers – including Cedars-Sinai Medical Center, the UCLA Health System and Hoag Memorial Hospital Presbyterian in Newport Beach – will begin charging lump-sum fees for hip and knee replacements.

That's a radical departure from the traditional practice of hospitals and doctors charging separately for their services, a fragmented system that drives up costs while leaving no one to coordinate decisions about patient care.

Leading experts say the California experiment and others like it nationwide offer a glimpse into the future of health care spending.

The federal government already is testing similar "bundled" payments for its Medicare program in Colorado, Texas, New Mexico and Oklahoma. And President Barack Obama's new health care law calls for exploring additional arrangements for surgical services for the elderly and the poor.

Advocates believe that greater cooperation among health care providers will ultimately slow the rise of spending and drive down insurance premiums.

"The idea is to provide an incentive for doctors and hospitals to sit down together to figure out the best way to care for their patients," said Weslie Kary of the nonprofit Integrated Healthcare Association, which is heading up the California experiment.

Kary said the lumped charges for hospitals and doctors have not yet been set but are expected to cover most aspects of medical treatment from surgery through 90 days of recovery.

Doctor bills, X-rays, artificial joints, tests and hospital care are among the fees that will be wrapped together for commercially insured patients who would otherwise be charged for each service. The single charge will vary from hospital to hospital based on the fee each negotiates.

Under the new approach, hospitals and doctors say they expect to share in savings when patients recover promptly, while bearing the risk of additional expenses when complications arise.

"We want to innovate," said Dr. Richard Afable, chief executive of Orange County's Hoag Memorial. "This is not about making money. It's about how we align financial arrangements so we can get the best outcomes for patients while reducing costs for all involved."

But even advocates of the bundled approach say it alone cannot solve the conundrum of rising health care costs.

Bundled payments may work for procedures with defined outcomes such as joint replacements, but health care officials wonder how the fixed fees will apply to chronic conditions such as diabetes that require ongoing care.

New billing systems also will not deter doctors and hospitals from performing extra tests and surgeries that generate revenue but do not necessarily improve medical outcomes, physicians acknowledge. And bundling will not stem the rising expenses of labor and prescription drugs, two of medicine's biggest cost drivers.

"The bundled payment is a step in the right direction ... but it's no panacea," said Dr. Thomas Rosenthal, chief medical officer of the UCLA Hospital System. "We're taking baby steps in rethinking how these payment methodologies can provide the right kinds of incentives."

Some health care economists believe the bundling approach won't save a dime. They argue that it could actually drive up health care costs and insurance premiums by giving hospitals and doctors greater influence over price negotiations with insurers.

Analysts say that large insurance companies exert their own leverage over prices, particularly with smaller hospitals that have limited bargaining power.

Insurers say bundling can control escalating medical spending, which in turn can reduce overhead.