5 things to know about negotiating bundled payments

Bundled payment models have been more slowly adopted among commercial insurers compared to numerous government models pushed by CMS. For providers, commercial bundles can offer plenty of opportunities, according to Penny Noyes, president of Health Business Navigators, as long as practices, as she puts it, “think like a payer” in negotiations.

Noyes’s presentation at the Medical Group Management Association (MGMA) conference in Anaheim, California, offered several tips on what a hospital, ambulatory surgical center or physician practice should consider before entering into a bundled payment arrangement.

1. Know why payers like bundles

Commercial payers have started to look more to bundles largely for joint replacements—hip, knee or shoulder—which are seen as more routine episodes of care which can be easily packaged. The main motivation from the payer side, she said, is saving money for themselves and their members.

“They say they want to improve quality. Of course they want to and they want to brag about that, but it’s not going to motivate them nearly as much as you proving you can save them money and therefore their customers’ money and therefore they’ll retain their customers,” Noyes said.

Finding the participants in the bundle will fall on one of the providers which can’t provide all the needed services for the determined episode of care. That includes everything from negotiating the cost of all the services, like imaging, rehabilitation, home care and physical therapy, to negotiating with the payer on the actual bundled rate.

2. You must be prepared for risk

Many providers have been uneasy about accepting downside risk, but it’s inescapable with a bundle.

“You have to prepare for some risk,” Noyes said. “What if you have someone whose whole claim just goes awry? They end up having several readmissions, they may have pneumonia, they might die—you have to start preparing for the risk that’s involved with somebody’s claim just going crazy. Or, all of the claims being a little bit crazy and bumping you into a point where you’re way beyond the margin you thought you were going to get and it’s actually costing you money to be the bundler.”

Some bundles have allowed providers to select which patients are included in the bundle, resulting in only low-risk, healthier patients being picked. She warned that’s “not going to fly very long” with payers.

3. The level of risk is negotiable

Why payers won’t allow that level of adverse selection, there can be ways to limit the risk to the bundler. Noyes said “you have to think like an underwriter” in excluding certain very high-risk patients, using the example of whether the bundler should accept a 450-pound patient in need of a knee replacement.

What can mitigate major, devastating losses is negotiating some underwriting guidelines for risk factors like smokers or co-morbidities. Another option is a reinsurance agreement with a stop-loss provision at either an aggregate or specific amount to help if one claim or many claims rack up costs beyond the bundled rate.

Noyes also recommended making sure the payer isn’t holding the bundler responsible for all services for a patient over a defined period of time. This could leave the bundler on the hook for problems outside the defined episode of care, like if a knee replacement patient enters the hospital with a cardiac issue.

4. Sorting out payments with providers and patients

If there’s one payment going to the bundler, this can create logistical issues with disbursing the money to the whole spectrum of providers involving in the episode of care. Claims submission needs to be worked out, Noyes said, with some bundlers choosing to put all associated claims on hold for a given period when providers are submitting separately.

This can affect the patient when it comes to deductibles and copayments. Noyes said one example of how providers complied with laws on collecting of copayments—even though they had agreed was to submit a claim of $0.

5. Why bother?

The first question to Noyes after the session may have been the most obvious: With all this work involved, why go through the trouble of putting together a bundle? The answer is the chance at a reward if costs are kept below the negotiated bundled rate.

“If you can come up with a price that’s smaller than that but you do it so efficiently that make you more margin than you did before, that’s the impetus for doing this,” Noyes said. “If you do a really good job, payers might be steering most of these to you.”