Bundled payments helped cut costs for several surgery types by more than 10%, with those savings passed on to employers and patients, a new study found.
Joint replacement, spinal fusion and gastrointestinal surgeries were on average $4,229 less when providers charged a set price compared to prior payment models, according to a RAND Corp. analysis of 2,372 procedures covered by self-insured employers between 2016 and 2020. The study, which used data from Carrum Health, was published in Health Affairs on Monday.
Employers received around 85% of the savings, or $3,582 per episode that represented a 9.5% relative decrease, while patients paid $498 less per episode marking a 27.7% relative decrease after their cost-sharing obligations were waived, according to the study. The impacts of the program increased over time, with employers effectively saving $7 for every $1 in patient copays waived, researchers said, noting that bundled payments typically slightly improved care quality or it remained the same.
While bundled payments are gaining popularity, they have not been widely adopted by private insurance plans, said Christopher Whaley, the study’s lead author and a policy researcher at RAND, a not-for-profit research organization. If they are implemented, they typically only apply to “big-ticket” procedures, he said.
“Maybe employers don’t want to be the first ones to adopt something this new. Also, if employers aren’t clamoring for these types of models and want to pass rising healthcare costs down to employees, there’s not a large incentive for private payers to invest in these plans,” Whaley said. “But the sizable savings could help drive more employers and payers to this type of model.”
The self-insured bundled payments program was modeled after the Bundled Payment for Care Improvement program, where providers negotiate a set price with employers that holds the providers responsible for all costs over a 33-day period.
Providers make money if they keep total costs below the target price and if they hit certain quality metrics, but they’re at risk for up to 20% of costs that exceed the target price. Hospitals and ambulatory surgery centers typically pursue these contracts to secure more procedures, get paid on time and avoid collecting out-of-pocket payments from patients or a surprise balance bill, which happens about 20% of the time with elective surgeries, researchers said.
Typically under the fee-for-service model, mean prices for spinal fusion, joint replacement and gastrointestinal surgeries were $98,944, $38,498 and $29,225, respectively. The mean prices negotiated through the bundled payments program ranged from a $29,164 difference, or a 29.1% relative difference, for spinal fusion surgery to a $7,143 difference, representing a 18.4% relative difference, for joint replacement surgery and a $1,600 difference, a 6% relative difference, for gastrointestinal surgery. After implementation, 23% of spinal fusion, 16% of joint replacement and 30% of gastrointestinal procedures were administered through the program, according to the study. The readmission rate for orthopedic patients was 0.5% among RAND/Carrum’s sample, compared to the national average of around 4.7%, Whaley said.
The bundled payment program also minimized price variation and led to more conservative treatment like physical therapy about 30% of the time, researchers found.
“The program has worked well for Medicare,” Whaley said. “Savings could be quite a bit higher on the private market because prices are all over the map.”
The model is gaining traction as it expands in breadth and utilization on a federal and state level. Connecticut has started a bundled payment program for its state employees, which is expected to save the state $185 million through fiscal year 2021.
While around 200 providers in Connecticut have agreed to participate, commercial insurers haven’t been as interested, said Joshua Wojcik, assistant comptroller for the state.
“They (the physician practices) are adopting that across their book of business and changing their referral patterns,” Wojcik told Modern Healthcare in November. “Our goal is to have a significant and long-term impact on the market dynamics in Connecticut and we are just starting to at least hear of and see the first glimmers of the impacts of changing the financial motivations of our provider groups.”