Bundled pricing is intended to reduce healthcare costs for payors and patients by better coordinating care and increasing efficiency. If successful, however, these programs may reduce the utilization of hospital services, putting current profit margins at risk. In order to maintain profit levels, hospitals will need to take significant steps to reduce their costs. Here Kevin Lieb, senior director with TRG Health Care Solutions, and James Reilly, managing partner with TRG Health Care Solutions, share four ways hospitals can maintain their profit margin under bundled contracts.
1. Align incentives between the physicians and the hospital. Mr. Lieb calls this "the single most important thing to do when entering into a bundled fee arrangement." Many hospitals are using gain sharing arrangements to financially reward physicians for driving down costs without sacrificing quality. Mr. Lieb cautions, however, that any hospital implementing a gain sharing program seek legal counsel, since these type of programs are regulated by a number of state and federal laws to ensure physicians are not inappropriately compensated for referrals.
2. Focus on variable costs that will yield the largest returns. Because success under a bundled contract requires reduced costs, Mr. Reilly recommends hospitals focus first on the "low hanging fruit" — high volume, high cost supplies, such as prosthetics, implants and stents. "These variable costs will most likely be the single largest component of care that is controllable from a cost standpoint," he says.
3. Develop care plans, which are managed actively by care coordinators. Hospitals need to work with physicians to develop meaningful care plans for all components of a hospital stay, including any pre- or post-operative visits that may be included as well as the time in the OR, ICU and nursing floors, as appropriate. These plans must be developed with the input and support of physicians to help make sure they are followed, says Mr. Lieb. After implementation, care coordinators or case managers should monitor patients covered by bundled contracts to ensure they are on the appropriate care map, and investigate any variances. Then, the hospital needs to provide ongoing feedback to the medical staff on compliance as well as any variability that is found, he says.
4. Seek external benchmarks. Finally, hospitals should seek external benchmarks and experiences from other providers who have implemented bundled pricing. Mr. Lieb says hospitals might consider assistance from an experienced, external third party to help with the financial, operational and strategic issues of bundled pricing.
Learn more about TRG Health Care Solutions.
1. Align incentives between the physicians and the hospital. Mr. Lieb calls this "the single most important thing to do when entering into a bundled fee arrangement." Many hospitals are using gain sharing arrangements to financially reward physicians for driving down costs without sacrificing quality. Mr. Lieb cautions, however, that any hospital implementing a gain sharing program seek legal counsel, since these type of programs are regulated by a number of state and federal laws to ensure physicians are not inappropriately compensated for referrals.
2. Focus on variable costs that will yield the largest returns. Because success under a bundled contract requires reduced costs, Mr. Reilly recommends hospitals focus first on the "low hanging fruit" — high volume, high cost supplies, such as prosthetics, implants and stents. "These variable costs will most likely be the single largest component of care that is controllable from a cost standpoint," he says.
3. Develop care plans, which are managed actively by care coordinators. Hospitals need to work with physicians to develop meaningful care plans for all components of a hospital stay, including any pre- or post-operative visits that may be included as well as the time in the OR, ICU and nursing floors, as appropriate. These plans must be developed with the input and support of physicians to help make sure they are followed, says Mr. Lieb. After implementation, care coordinators or case managers should monitor patients covered by bundled contracts to ensure they are on the appropriate care map, and investigate any variances. Then, the hospital needs to provide ongoing feedback to the medical staff on compliance as well as any variability that is found, he says.
4. Seek external benchmarks. Finally, hospitals should seek external benchmarks and experiences from other providers who have implemented bundled pricing. Mr. Lieb says hospitals might consider assistance from an experienced, external third party to help with the financial, operational and strategic issues of bundled pricing.
Learn more about TRG Health Care Solutions.