The Transformative Potential of Bundled Payments

At the Middle Tennessee Employee Benefits Council (MTEBC)’s May Meeting, participants were challenged to think differently about their benefits plans as they approach 2021. With the support of Vanderbilt Health Employer Solutions, CJ Stimson, MD, Assistant Professor in the Department of Urology at Vanderbilt University Medical Center (VUMC), hosted the virtual meeting entitled “Cost Savings Through Bundles.” Dr. Stimson—who concurrently serves as the Medical Director of the Office of Episodes of Care in the Office of Population Health and as Senior Advisor to the Chief Health System Officer of Vanderbilt Health System—discussed ways to proactively control costs in 2021 health benefits plans, an even more crucial task for the upcoming year.

The Challenge

“We all understand that healthcare is wasteful,” Dr. Stimson began, calling to attention a seminal 2012 study from Donald M. Berwick, MD, MPP and Andrew D. Hackbarth, MPhil, on the six types of healthcare waste, which the authors categorized as overtreatment, failures of care coordination, failures in execution of care processes, administrative complexity, pricing failures, and fraud and abuse. Berwick and Hackbarth found that “the sum of the lowest available estimates exceeds 20% of total healthcare expenditures,” with the actual total likely far greater. 

“We’re spending more but we're not getting more,” Dr. Stimson says. From 1970 to 2010, the economy grew at a rate of 5.8%, while healthcare spending grew at a rate of around 8.2%. “Over that 40-year period, the rate of spend was growing faster than the economy’s rate of growth,” he says. “For an employer that means the amount of money that you're spending on healthcare services is far outpacing your business revenue. That is an unsustainable trajectory.”

Employers are certainly feeling the squeeze. In an April 2019 Commonwealth Fund survey of small business owners’ top challenges, employers overwhelmingly declared the cost of providing healthcare coverage to employees as their No. 1 issue.

The Bundled Payment Solution

Dr. Stimson believes one solution is to change the rules of the game by changing how we pay for and deliver care. He’s an advocate of the bundled payment model, which can help eliminate certain elements of healthcare waste. “Bundles can’t solve everything, such as administrative complexity and pricing failures, but they are a great way to tackle failures in care delivery, care coordination and overtreatment,” he says.

The bundle payment model begins by identifying an episode of care—a maternity experience or a spine surgery, for instance. It then assigns a single prospective bundle price to cover all the required services of that experience. “It removes the incentive for me as the surgeon to do more and more and more,” Dr. Stimson says. “It adds the incentive to do only what's necessary and coordinate with the other providers and caregivers who are impacting that patient's life.”

He outlined some of the advantages of the bundled payment model:

  1. It removes the misalignment of financial incentives and decreases utilization. “In a fee-for-service world—a world in which I get paid for everything I do, whether it has a good outcome or not-good outcome—you're going to see more utilization,” Dr. Stimson says. “With bundled payments, providers take on more risk, which will ultimately deliver a better experience for patients both clinically and from a service standpoint.”
  2. It’s a predictable model. Bundled payments allow for a transparent, known payment for a set of services.
  3. It drives out wasteful spend. By encouraging the creation of care paths and protocols, the system prioritizes consistent care and eliminates variation. “There’s no incentive to deliver any service that's unnecessary,” Dr. Stimson says.
  4. It breaks down silos and increases care coordination. Instead of paying for different services separately—physician services, radiology, surgery, anesthesiology, etc.—the bundled payment encourages coordination and builds in incentives for departments to manage a patient’s entire experience.

“Bundled payments are a win for patients and employers,” Stimson concludes. “Not only will patients have a better experience with increased care coordination and less unnecessary treatment, but the employers who pay for the majority of employees’ care will also realize the financial upside.”

For Dr. Stimson’s entire presentation, access the audio recording here, and an audio and video recording here.  Click here to learn more about the MTEBC and its upcoming events, and click here to learn more about Vanderbilt Health’s MyHealth Bundles.