Skewed Spending Growth Of Various Care Episodes Policy Makers Will Need

Bundled payment entails paying a single price for all services delivered as part of an episode of care for a specific condition. It is seen as a promising way to slow the growth of health care spending while maintaining or improving the quality of care. To implement bundled payment, policy makers must set base payment rates for episodes of care and update the rates over time to reflect changes in the costs of delivering care and the components of care. Adopting the fee-for-service paradigm of adjusting payments with uniform update rates would be fair and accurate if costs increased at a uniform rate across episodes. But our analysis of 2003 and 2007 US commercial claims data showed spending growth to be highly skewed across episodes: 10 percent of episodes accounted for 82.5 percent of spending growth, and within-episode spending growth ranged from a decline of 75 percent to an increase of 323 percent. Given that spending growth was much faster for some episodes than for others, a situation known as skewness, policy makers should not update episode payments using uniform update rates. Rather, they should explore ways to address variations in spending growth, such as updating episode payments one by one, at least at the outset. B undled payment for episodes of care has received significant attention as a means of slowing the rapid growth of health care spending that has occurred under the fee-for-service system. Such payment systems pay a single price for all services delivered as part of an episode of care for a specific condition. Both public and private payers are experimenting with episode-based payment models as a way to curb spending growth and improve the quality of care. At the federal level, this type of reimbursement has been used for Medicare Parts A and B services in selected demonstrations. For example, it is being used by the Center for Medicare and Medicaid Innovation’s Bundled Payments for Care Improvement initiative to test four innovative bundling approaches across a mix of hospital, hospital physician, and postacute care services. At the state level, Arkansas Medicaid and private insurers partnered in 2011 to form the Arkansas Health Care Payment Improvement Initiative,which aims tomove the state’smedical spending to bundled payment. In the private sector, GeisingerHealth Systemoffers a bundled payment rate for coronary artery bypass surgery that includes both preand postoperative care. As bundled payment programs evolve, it is likely that theywill increasingly beused in conjunction with other paymentmodels. For example, payers and providers could agree to a global budget for overall spending and then to bundled payments within that amount for discretely defined epidoi: 10.1377/hlthaff.2012.1246