California Bundled Payment System Fails to Take Hold

A regional bundled payment system has hit a roadblock in California, according to a study in Health Affairs. The program failed to meet its goals, succumbed to recruitment challenges, faced regulatory uncertainty, and sputtered under administrative burdens.

"Bundled payments have great promise for controlling health care costs, but thus far efforts to put the strategy in place on a wider scale have struggled," said Susan Ridgely, the study's lead author in a news release from RAND, a nonprofit research organization. "We've learned lessons from the early setbacks, but more work still needs to be done to realize the potential of this model of payment."

The 3-year study initially involved 6 of the state’s largest health plans, 8 hospitals, and an independent practice physicians’ association, and covered orthopedic procedures carried out in area hospitals. In the model, doctors, hospitals, and other health providers are paid 1 fee for performing a procedure or caring for an illness. The fixed payment covers the average cost of a bundle of services, such as all aspects of caring for a person with a hip replacement. The approach is intended to encourage health providers to work together to eliminate unnecessary care and improve quality.

The researchers note that over time, 2 payers dropped out because they believed the bundled payment model in this project would not lead to a redesign of care or lower costs, according to the release. The researchers report that only 2 hospitals signed contracts with health plans to use bundled payments. Those hospitals that eventually dropped out of the program reported a lack of need to participate, as well as concerns about the time and effort involved.

The volume of orthopedic procedures was also a factor for the program’s failure, with researchers reporting just 35 cases in 3 years. The study says that delays in regulatory approvals of contracts, a lack of consensus about what types of cases to include under bundled payment, and defining which services belonged in the bundle contributed to the program being sidetracked. In the end, most stakeholders agreed that the bundle definitions were probably too narrow to capture enough procedures to make bundled payment viable.

The researchers recommended that future bundle payment models ensure sufficient volume, keeping the definitions of bundles simple, and finding ways to manage the financial risk for health care providers.