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Healthcare Practice Strategies - Winter 2014 - Bundled Payments: Don’t Leave Money on the Table

Feb 7, 2014

As Accountable Care Organizations (ACOs) and other value-based payment initiatives work their way into the state and commercial markets, payers are increasingly turning to bundled payments — giving a team of providers a single payment for a defined set of services associated with an episode of care.

Others are utilizing a concept known as “virtual bundling” — paying each individual physician separately and adjusting the payment based on the contract negotiated with the ACO.

The good news is that many physician organizations appear to be open to the idea of some form of risk-bearing payment such as a bundled payment. In fact, many say they would be willing to accept the financial risk because it gives them predictability as to what their revenue stream is going to be. In other words, if they know how much they have to work with, they can then figure out how to best manage the care in order to provide quality, safety and cost efficiency within that budget.

Is Your Practice Ready?

Unfortunately, physicians can easily shortchange themselves when it comes to bundled payments. Many sign on before fully understanding the payment model and the quality measures they’ll need to hit.

Indeed, under the ACO model, quality and performance metrics could come in many forms — from utilization and patient outcomes to cost containment and patient satisfaction surveys. So, before making the switch from fee-for-service to bundled reimbursement — either by choice or payer request — you’ll need to think through some of the particulars, including:

  • How each episode of care is defined.
  • What services are included in the bundle.
  • How the bundled payment is calculated.
  • The duration of each episode.
  • How the bundled payment will be divided.

Avoid the Cash Flow Crunch

At the same time, you’ll need a thorough understanding of how bundled payments will impact your monthly cash flow.

Here, many practices lack the infra- structure, staff and administrative expertise to properly administer a bundled payment program. So it often winds up being a hospital’s financial department, an Independent Practice Association (IPA) or a third-party administrator that ultimately administers the bundled payment.

Obviously, you’ll want an open and transparent relationship with whoever is holding the money. But even in the best arrangements, you may still find that cash flow can slow to a crawl. Anything from administrative delays to financial difficulties on the part of the entity charged with managing the bundled payment could hold up disbursement.

So, instead of receiving payment within two or three weeks after seeing a patient as you’ve grown accustomed to, you may be stuck waiting.

Planning for bundled payments may require performing some fairly sophisticated analysis to accurately predict cash flows and determine shortfalls. To en-sure that you have the necessary cash flow to operate your practice, you may need to negotiate a monthly stipend or advance from the payment administrator. In fact, if bundled payments will be a significant part of practice re-venue, you may also need to identify credit resources to bridge the gap in the event that payments are delayed.

Start Out Slow

Practices contemplating a move to bundled payments may want to consider a trial run; for instance, a short-term contract that includes a clear escape clause. Another provision to include in negotiations is some type of stop-loss provision or adjustment mechanism to provide downside protection.

Align Compensation with Quality Measures

Another key step to switching to bundled payments is to adjust your physician compensation model so that payment is aligned with ACO goals. For the most part, that means tying compensation to quality measures. For example, you could adjust your model so that 75 percent of compensation is tied to production and the remaining 25 percent is linked to attaining quality measures.

Healthcare Practice Strategies - Winter 2014

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