Would Bundled Payments Save Patients, Medicare Money?

image of doctors office with hands holding money and medicare card; medicare bundled payments

Medicare is the nation’s largest healthcare program, providing medical services and supplies to seniors and people with disabilities across the country. Healthcare experts and economists are constantly trying to figure out ways to save the program money, and one of the more recent proposals is to move to bundled payments.

What are bundled payments?

Typically, patients will pay separately for each healthcare service or item associated with a medical event. Bundled payments occur when patients pay a flat rate for medical episodes instead of being billed separately.

Medicare already does this for some major surgeries, like hip and knee replacements (which can cost up to $125,000), and includes services like physical therapy and rehabilitation (also called post-acute care). This leads to patients and Medicare saving money because of the way bundled payments incentivize hospitals. If a patient recuperates quickly, the hospital can reap the savings. If a patient has complications, the hospital may have to pay Medicare more money.

In theory, if doctors and hospitals receive one flat rate for services rendered, it stands to reason that they will better coordinate the care of a patient in order to keep spending down and limit waste.

One concern is that bundling payments is currently on a volunteer basis, making it hard for researchers to track trends and savings. Another concern is that bundled payments would incentivize doctors to encourage patients to have procedures done even if they don’t necessarily need them. However, there is no evidence to support this concern in bundled payment studies.

Responses from experts

Christine Yee, a health economist with the Partnered Evidence-Based Policy Resource Center at Boston VA Healthcare System said, “Medicare has tried bundled payments in one form or another for more than three decades. They tend to save money, and when post-acute care is included in the bundle, use of those kinds of services often goes down.”

A recent study published in the medical journal JAMA found that bundled payments reduced the use of rehabilitation by about 3 percent. Amy Finkelstein, an M.I.T. health economist and author of the study said, “[More] savings could emerge in later years because it may take time for hospitals to fully change their behavior.”

Ezekiel Emanuel, co-author of the study, said “These results suggest bundled payments are a win-win. They save payers like Medicare money and encourage hospitals and physicians to be more efficient in the delivery of care.”

In all, bundled payments protect Medicare beneficiaries and Medicare alike because it reduces administrative costs and cuts down on fraudulent billing.

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