Bundled Payments, Barely Hatched, Go the Way of the Dodo

Last month, I wrote about Accountable Care Organizations (ACOs), medical groups accountable to the federal government for management of healthy populations. Even Zeke Emanuel recognizes that they are failing. Dr. Emanuel advised Medicare to “lump together” all the services associated with a procedure, such as a hip replacement, and pay one fee for the entire services.

As I noted, Medicare already does this via its Bundled Payments for Care Initiative (BPCI), which launched in 2013. At the time, hospitals and other providers were offered voluntary participation. Just a few weeks ago, Medicare decided to make bundled payments mandatory for some procedures in some areas. Now we know why: Providers are learning that the bundles don’t work.

Whether we call them “lumps” or “bundles” the results of the voluntary initiative are coming in and they are telling pretty much the same story as the ACO experience:

Medicare’s voluntary test of bundled payments added new contracts in July, but about two-thirds of the hospitals, medical groups, nursing homes and other providers that had initially enrolled instead dropped out.

The initiative, known as the Bundled Payments for Care Improvement initiative and launched under the Affordable Care Act, initially attracted nearly 7,000 providers that agreed to formally review how they could enter bundled-payment contracts with Medicare. The CMS announced on Thursday that 2,100 providers finished that review and entered contracts under which Medicare will bundle the costs of treating various conditions—heart failure, joint replacement, stroke, heart attacks—into a single payment.

The reason for the failure of both initiatives is the same. ACOs are accountable to the federal government instead of their patients. Similarly, the “bundles” are bundled by the federal government. The only way to figure out which services should be bundled together in one payment is to let entrepreneurs try different bundles and let patients decide which to choose.

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For the pivotal alternative to Obamacare, please see A Better Choice: Healthcare Solutions for America by John C. Goodman (Independent Institute, 2015).

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