For decades, many experts on U.S. healthcare have known that the current fee-for-service (FFS) system was not a sustainable way to pay for medical care. It incentivizes providers to perform more procedures and offer more care, even when there is no evidence that care will lead to a better outcome for the patient. The perverse incentive system focuses on the wrong behaviors, driving up prices that ultimately cost employers and consumers more money each year for lower quality care.
Alternative payment models (APMs) are not a new idea in healthcare. Payers have attempted various APMs over the years in an attempt to control costs. But in these attempts, there was often a missing piece that proved difficult to solve – having access to data and technology that made these payments easier to administer.
For example, both government and private payers used health maintenance organizations (HMOs) owned and managed by insurance companies to implement capitated payments in the 1980s and 1990s. But HMOs didn’t require providers to move to capitation and continued paying claims on a fee-for-service basis. They tried to limit healthcare utilization at the consumer level, but the resulting backlash to primary care physicians as “gatekeepers,” accusations of rationed care that put insurance profits ahead of patient health, and insurance-related red tape and care delays ended the capitation attempt at the time.
Bundled payments were another alternative payment model from the 1980s that failed to take off at the time. In 1984, Texas Heart Medical Group (THMG) introduce the first-ever bundled payment arrangement for cardiovascular surgery. It included all physician and hospital charges under a global payment package, at a flat fee that was lower than individual charges.
While THMG demonstrated lower costs and better outcomes with the bundled payments, broad adoption was limited. One reason is that payments were retrospective, meaning costs are calculated after the episode of care is over, and may include things like incentives paid to the healthcare system or provider, or additional money owed if costs exceeded the set bundles price.
A better option today is a prospective bundle, which calculates a fixed price for all the services included in care and pays the providers and facilities accordingly. There is no additional payment if costs exceed the bundled price, so everyone has incentive to provide the patient with the best outcome at the lowest cost. If total costs fall below the bundled payment price, providers and facilities get to keep the savings.
If we are ever going to move away from a fee-for-service payment system, APMs are the only viable option. These payment models incentivize better care at the lowest possible cost because they pay physicians and care providers for outcomes rather than volume. They offer incentives to focus on preventive care – not just “sick care” – and engage patients in health management.
But changing the way CMS and private insurance pay for care is only the first piece of the puzzle. Everyone must have appropriate technology tools to identify cost-effective and high-quality care opportunities to make the most of the payments they receive. They must be able to analyze data on populations, cohorts, and individual patients to pinpoint necessary care interventions that minimize the risk a patient will need costly care in places like the emergency room.
Until now, a comprehensive payment technology solution has not been available. Now Cedar Gate offers a complete and composable solution that can handle everything from fee-for-service claims to prospective bundles and full or partial capitation agreements. This helps organizations transition away from FFS toward more sustainable and effective models, as seamlessly as possible.
CJ Stimson, MD, JD
Chief Medical Officer, Employee Health Plans
Senior Vice President, Value Transformation
Vanderbilt University Medical Center (VUMC) partnered with Metro Nashville Public Schools (MNPS) to create bundled payment options in an effort to reduce costs and improve care. CJ Stimson, MD, JD, chief medical officer of the Vanderbilt University Medical Center and Vanderbilt University Employee Health Plans, initially suggested they look at musculoskeletal procedures (such as hip and knee replacement, which are common in bundled payment plans). But MNPS had another idea based on the unique needs of their employees: how about a maternity care bundle?
Together, VUMC and MNPS developed the MyMaternityHealth program, which saved money for both MNPS and its employees, while dramatically improving clinical outcomes for expectant teachers and their babies.
VUMC collaborated with Cedar Gate to remove one of the biggest barriers to the successful delivery of provider-led bundles – who pays for what and when. Cedar Gate’s robust technology platform enabled VUMC to throw out old fee-for-service rules and confidently move to a valued-based payment model that supports financial risk and offers a streamlined financial experience for patients and employers.
In the first year, MNPS saw more than $400,000 in total program savings, a decline in c-sections from 40% to 29%, an increase in healthy births, and a 16% decrease in NICU spending. They also tracked Net Promoter Score (NPS) to ensure high levels of satisfaction. That score is consistently in the 90th percentile. Vanderbilt now offers 10 bundles, ranging from bariatric and musculoskeletal to cochlear implant, and plans to add two more in 2023.
Making these changes is not optional, so it’s time to either march forward on this journey or fall behind. Let’s turn the page on healthcare history together.
