An Example of How Evidence Can Be Misleading (Bundled Payments Version)

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Bundled payments are a proven strategy in non-healthcare industries, only we call them by different names. We say we’re paying for a “hotel room” when really we’re paying for the use of the room, the cleaning of the room, the “free” wifi, the “free” continental breakfast, access to the concierge, etc. We say we’re paying for a “cruise” when really we’re paying for the cabin, the unlimited food, the port fees, the access to the shows, use of the onboard pools, etc. These terms (“hotel room” and “cruise” are just two examples) are shorthand terms that refer to the bundle of goods and services you get when you pay that single price. That’s how it works in every industry.

Except healthcare. When we get a bill for a knee replacement, it only contains the surgeon’s cost (okay okay, including the hardware). But there’s also a bill for the anesthesiologist. And for the operating room. And for the hospitalization if you need to stay.

Why would all those things be listed individually if you know you will need a surgeon, an anesthesiologist, and an operating room every single time you get a knee replacement?

Enter bundled payments. They finally turn healthcare a little bit more into a normal industry by allowing patients to pay a single price for the bundle of services that should always be included in that one upfront price.

Sidenote: yes, healthcare is and should always be different from other industries in many important ways. For more details on that, read Arrow’s seminal article on the topic. None of this is incompatible with those insights.

But apparently bundled payments are not very helpful according to this Health Affairs review of the evidence. What gives?

When I see a paper like that, I appreciate the effort to summarize the evidence, but I cringe thinking about all the headlines and misinterpretations and misconceptions that it will perpetuate. People are going to start saying that our large-scale efforts to implement bundled payments are a waste of money . . . and they have evidence to back them up!

But that’s totally the wrong conclusion. This is how I interpret this study: I first think about the overall purpose of bundled payments. When you put their role into the context of the Healthcare Incentives Framework, their purpose is to allow patients to know up front the full price for accomplishing the job they have (get their knee functional again). This enables the patient to compare the price of different options. If they also have quality information of those options, now patients have the ability to shop for the best value (Value = Quality / Price). And when patients start choosing which provider to do their knee replacement based on value, market share starts to shift to the higher-value providers, thus forcing the lower-value providers to change in ways that either raise their quality, lower their price, or (hopefully) both! This is the potential benefit of bundled payments–it is an essential component in stimulating a newfound evolution toward higher quality and lower prices in the market for that specific service.

Compare that to how these studies evaluated the utility of bundled payments: They implemented them for a single procedure and usually with just one of many insurers a provider contracts with. Thus, in most cases the providers were still reimbursed the old fashioned way by all their other insurers. And I would guess that very few competitors in any given region were participating in the same bundled payment program. Therefore, there was no way providers were going to completely shift how they deliver the service because of the narrow scope, a lack of uniform incentives, and a lack of any strong financial imperative to do so (their biggest risk was only of losing a percentage of revenue on small portion of their patients–enough to motivate them to try to do some things a little differently but not to completely redesign how they deliver care–and the risk of losing market share to their competitors due to low value was almost nil). In short, these studies did not get even close to creating the environment for an evolution toward higher value.

With this as context, it’s a surprise to me that any of these bundled payment studies found any benefit at all!

Now, if I could perform my dream study (the design details here and here), that would make a splash. It would get us much closer to the true estimation of how impactful bundled payments could be in healthcare. And until a study like that is done, remember the importance of context, and take any evidence on the impacts of bundled payments with a large grain of salt.

Next week I’ll start looking at Joe Biden’s healthcare plans, so look forward to that!

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