March 2012


There’s a lot of hope bundled up in “bundled payments.” The approach, which was made possible by the Affordable Care Act and is being supported through Medicare pilots, is defined as the reimbursement of health care providers (such as hospitals and physicians) “on the basis of expected costs for clinically-defined episodes of care.”

So, for example, a complicated episode of care like a knee replacement, which entails a host of clinical procedures delivered by a dizzying array of medical professionals (perhaps not always well coordinated end-to-end), would be reimbursed through a single “bundled” payment, with the intention of creating greater efficiencies and less waste.

Considering the vast inefficiencies in the health care system, bundled payments seem to be a step forward. One study found that reducing complications during and after a total knee replacement would save an estimated 20% of total care costs for Medicare and 10% for commercial payers.

Still, a few questions come to mind:

  1. How can this new payment approach be extended to cover non-clinical health factors? We know that social and environmental contexts (housing conditions/safety, social connections/caretakers) play important roles in recovery; these factors can either support or jeopardize a successful knee replacement outside the hospital. If we don’t consider non-clinical factors as part of the “episode of care” we miss an essential opportunity to reinforce what happens in the clinical setting.
  2. How can bundled payments – or other innovative health financing strategies – be used to move care upstream to prevention? The best way to reduce the cost of joint replacement (or any treatment) is to make sure it is not needed in the first place.
  3. How can innovative payment strategies support population-based approaches (vs. individual treatment)? Imagine here that we are addressing clinical and non-clinical conditions that support healthier populations (prevention) and recovery environments.

As the knee replacement study indicates: “when case costs are higher than average, that excess is almost exclusively caused by (potentially avoidable complications).”

So, what are the sources of those complications? This might reveal opportunities for a bigger bundle – and a more sustainable impact.

The Affordable Care Act (ACA) encourages care coordination and payment structures — accountable care organizations (ACOs), patient-centered medical homes (PCMH) and medical neighborhoods — that promise more efficiency and integration of clinical services. But these models will have limited impact if they fail to address non-clinical factors that account for more than half of what makes us healthy or sick in the first place.

After all, what good is a ‘health home’ if it’s in the middle of an unhealthy neighborhood?

The Prevention Institute has created a framework for Community-Centered Health Homes that integrates clinical care and community prevention “in order to reduce demand for resources and services; improve health, safety, and equity outcomes; and”  — here’s the really cool part — “provide medical providers with skills and strategies to change the social circumstances that shape the health of their patients.”

Download the report PDF here.