Bundled payments follow a predictable script
Regarding the Oct. 26 editorial “A bungled bundle” (Modern Healthcare, p. 24), bundled payments are nothing new. They have been around since the 1970s when Congress created the End Stage Renal Disease reimbursement program, a fixed bundled payment for kidney transplants and dialysis. Here’s what happened then, and what will happen with all the new bundles.
Private groups backed by venture capitalists create specialty providers that can easily cut prices, since they do not have to carry any of the big overhead that a hospital does (such as a 24/7 emergency department). In the early years, the specialty facilities make a bundle, since the starting rates are based on hospital expense data. Then, as expected, Medicare starts to cut rates. The private providers respond accordingly, Medicare cuts again, and around and around it goes.
After about four iterations, hospitals drop out, leaving only a few private providers. Medicare cuts some more, and when the corporate providers see the return on investment fall below expected investor returns, the corporations sell off or drop out.
In time, the system is left with two or three private providers and they cut special deals with not-for-profit hospitals, and the programs return to the original facilities at maybe break-even rates. And here we go again.
Frank Poggio President and CEO Kelzon Group Barrington, Ill.