MedPAC mulls concept of bundling Medicare payments

Physicians worry that such a "radical" move would disrupt practices.

By Markian Hawryluk, amednews staff. Oct. 27, 2003.

Washington -- When it comes to paying for physician services, a Medicare advisory panel is unsure whether the whole is greater or less than the sum of its parts.

In October, the Medicare Payment Advisory Commission discussed the merits of bundling payments for services provided in an episode of care into a single fee, rather than paying for each service individually. But unlike many bundling efforts in the past, this one is not necessarily aimed at reducing utilization or cutting costs.

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Since its inception, Medicare has steadily moved away from paying health professionals for each individual service provided to beneficiaries and sought to pay for groups of services as a way of reducing unnecessary procedures. Medicare already bundles payments to physicians for surgical services and for oversight of care for patients with end-stage renal disease.

MedPAC is considering whether bundling payments for other types of care could have additional benefits, such as reducing administrative costs or promoting best practices.

"It's a way of thinking about the care that needs to be provided," said MedPAC Chair Glenn Hackbarth. "The idea is you bundle these things together and say this particular condition needs this kind of a course of treatment. But it's not enough that you pay on that basis alone; you also have to have some quality measures."

Quality measures or other safeguards would ensure that physicians aren't encouraged to hold back care.

Questions about pricing

The commission has been studying the variation in Medicare spending per beneficiary in different regions of the country. But high-use areas have not produced better outcomes than low-use areas. That makes it difficult to judge what an appropriate payment for an episode of care should be, said MedPAC Commissioner Alan Nelson, MD.

"If we look at bundling, it ought to be to try to link payment with the appropriate use," he said. "If there are all these unrecognized or undertreated hypertensives, if preventive services aren't being offered at the rate they should, if diabetes is not being managed, indeed the underuse problem may be a bigger problem than the overuse."

Medicare has moved toward paying for groups of services to reduce unnecessary procedures.

Dr. Nelson said the vast majority of physician services are for evaluation and management, and trying to bundle those services in a rational way would be extremely difficult.

"We know there are big differences in how often people with chronic conditions see doctors," he said. "But we don't know how often they should."

Medicare would face considerable challenges in determining episodes of care and how to pay accurately for those bundles of services. But recent advances in computer software have made it easier to group claims for services provided during a single episode of care. MedPAC staff suggested relying on physician input to help set the bundled payments.

The American Medical Association said physicians typically do not see enough patients who require any one procedure to be able to average their costs across a group of patients. Additionally, many patients receive care from multiple physicians, often in different states, the AMA said.

"Bundling of Medicare physician payments could cause considerable disruption to practices and be difficult to implement," the Association stated. "The AMA has serious concerns that MedPAC is contemplating such a radical change in the Medicare physician payment system."

Physicians have viewed proposals to bundle payments as a way to limit services or cut costs, said James Scroggs, associate director of the Dept. of Health Economics at the American College of Obstetricians and Gynecologists.

Medicare already bundles some payments to physicians.

"A woman becomes pregnant and all of the sudden every illness she encounters is something that an obstetrician gets to handle as part of the package," he said. "We continue to fight that on many levels to make it clear there are certain things that are included in the obstetrics global package and some things that aren't."

For example, insurers have used bundled payments to rein in the use of ultrasound during pregnancy. "Knowing that many physicians do that more frequently than [insurers] believe is necessary, they include the ultrasound as part of the global package," he said. "But they may pay a little bit more and say, 'Well, if you want to do six ultrasounds during a pregnancy, that's fine, but we're not going to pay you for them.'"

That has led to resistance from physicians to accept bundling.

"The major problem I think we had as an industry, which varied across plans, was that in the eyes of many physicians, bundling became synonymous with the concept of automatic downcoding," said Aetna Chair and CEO John Rowe, MD. "It was just seen as a way of paying less."

Dr. Rowe said the industry had made progress in bringing physicians around on bundling. He stressed that administrative savings can be achieved by billing for a single bundle, rather than for a host of services.

"Even if the total amount of money that the doctor is getting is the same, the bundling isn't necessarily about the money," he said. "It's about making the system much more efficient, rather than having any impact on what the doctor does. If they just do exactly what they are supposed to do -- which many do -- sending one bill rather than five bills makes a lot of sense."

Real-life example

Harish Malhotra, MD, of NorthShore Hematology/Oncology Associates in East Setauket, N.Y., has firsthand experience with bundling. In the late 1990s, he provided bone marrow transplants to breast cancer patients under bundled payments negotiated with private health plans. The set fee covered the costs of hospitalization and complex outpatient services, including high-dose chemotherapy, hydration and growth factors. NorthShore subcontracted with two local hospitals on a per-diem basis for inpatient care and paid other specialists on a pre-negotiated, discounted fee-for-service basis.

If a patient did well and was released from the hospital in less than a week, the practice could profit. On the other hand, if a patient got worse and remained in the hospital for a month, Dr. Malhotra had to cover those costs.

"Theoretically, you could lose money very quickly if things went haywire," he said.

It's unlikely physicians serving Medicare patients will have to worry about bundled payments any time soon. The commission has just started discussing the issue and has not determined whether to weigh in on it in its June report to Congress. Even if the panel opts for a recommendation, Congress is unlikely to approve such a payment change without a successful demonstration project first.