Retooling business operations for bundled payments

In the pursuit of reduced healthcare costs, payers and providers nationwide are considering a number of new reimbursement models. One strategy receiving much attention and traction is bundled payment models.

Ultimately, the goals of bundled payments are to reduce the costs of administering healthcare and to encourage higher-quality care through shared risk. The model offers several benefits: for payers, the potential to cut costs through a simpler payment cycle and protection from paying for medical errors; for providers, the elimination of waste and improvement in profitability through the delivery of high-quality care; and for patients, the best possible care – delivered more efficiently.

As payers and providers explore and adopt bundled payment arrangements, however, their business operations may require significant retooling. Payers will have to modify their infrastructure and network management to handle bundled claims. They will need to develop methods to share clinical and financial information with stakeholders. Providers will have to modify their systems to accommodate new ways to bill, receive payments and manage patients – new ways that assume more risk. Together, payers and providers must agree on conditions and episodes of care to be paid for through bundled payments, as well as measures to evaluate performance.

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Here are some steps providers and payers can take to assess and transition their business operations to incorporate bundled payment contracts.

Payer steps

  • In agreement with targeted providers, establish payment parameters. Define which conditions and episodes of care will be reimbursed through bundled payments. Consider conditions and procedures that represent the most immediate opportunity for improvement, such as those with significant variation in quality and resources or with the most potential to enhance care coordination. Define and agree on the measurements that will be used to gauge provider performance.
  • Determine payment models. Weigh the options to pay providers prospectively, with a target price for the bundle before treatment, or retrospectively, after the episode of care has occurred.
  • Invest in the infrastructure for bundled payments. Evaluate and adapt current technology to adjudicate and review claims for appropriately bundled services. Implement transaction systems to consolidate billing, payment management, reporting and analytics and provider communications. Build tools for internal use to measure operational and financial performance and to gauge, and offer feedback on, provider performance.

Provider steps

  • Thoroughly evaluate your revenue cycle for bundled payment readiness. Identify episodes of care that can be best improved upon, and areas of inefficiency that can be corrected, with a bundled payment approach. Assess how you will identify participating patients and track all episodes of care. Determine needed changes in documentation, coding, claims submission and billing and payment operations. Establish procedures to distribute payments to owned and contracted providers.
  • Consider current – and future – revenue cycle pathways and technology. Identify transitions needed to adopt new payments and reimbursement. Determine if current technology can accommodate the processes, decision support needs and episode payment rules or if new systems are required. Look for integrated systems that enable controlled access to clinical and financial data so all participants in an episode of care can share data for informed decision making.
  • Focus on new patient protocols. Be sure patients understand the bundled arrangement and what they can expect from it. For example, if the bundle is for a joint replacement, the patient may be required to use a specific provider for rehabilitation. Leverage the opportunity to improve patients’ care experiences through transparent pricing and simple explanations of their financial responsibility. 
  • Establish extra controls to avoid claims delays and rejections. Depending on contractual agreements, you may pay other providers connected to an episode of care before you are paid. Delayed or denied payments can present serious cash flow issues. Refine your rejections and appeals process to accommodate bundled payments.

Payer and provider steps

  • Measure performance. Determine the systems and standards to be used to measure outcomes for bundled payments, and implement processes to collect, analyze and report on the data needed. Align electronic health records with claims data to maximize efficiencies.
  • Continuously monitor and improve your bundled payment program. Refine bundle definitions, revise included and excluded services, and adjust contracts as your program is rolled out. Work closely to evaluate process flows and actuarial models. Identify variations in care that reflect the best prospects for improvement.

In the quest to lower costs and improve patient outcomes, the healthcare industry will continue to pursue new approaches to payment and delivery. Bundled payments present a prime opportunity for payers and providers to collaborate to implement a less-costly, more-efficient revenue cycle, one that supports today’s value-based, patient-centric models of care.

The views expressed herein are those of the authors and do not necessarily reflect the views of Ernst & Young LLP.