Bundled Payment Orthopedic Pilot Program A Bust In California

M. Susan Ridgely, JD Senior Policy Analyst RAND Corporation Santa Monica, CaliforniaMedicalResearch.com: Interview with:
M. Susan Ridgely, JD
Senior Policy Analyst
RAND Corporation
Santa Monica, California


Medical Research: What are the main findings of the study?

Answer: We evaluated a three-year effort, coordinated by the Integrated Healthcare Association, to determine whether bundled payment could be an effective payment model for California. The pilot focused on bundled payment for orthopedic procedures for commercially insured adults under age 65. Bundled payment is a much-touted strategy that pays doctors and hospitals one fee for performing a procedure or caring for an illness. The strategy is seen as one of the most-promising ways to curb health care spending. Unfortunately, the project failed to meet its goals, succumbing to recruitment challenges, regulatory uncertainty, administrative burden and concerns about financial risk.

At the outset of the project, participants included six of the state’s largest health plans, eight hospitals and an independent practice association. Eventually, two insurers dropped out because they believed the bundled payment model in this project would not lead to a redesign of care or lower costs. Another decided that bundled payment was incompatible with its primary type of business (health maintenance organization). Just two hospitals eventually signed contracts with the three remaining health plans to use bundled payments. Hospitals that dropped out cited concerns about the time and effort involved.

The project was hurt by a lack of consensus about what types of cases to include and which services belonged in the bundle. In the end, most stakeholders agreed that the bundle definitions were probably too narrow to capture enough procedures to make bundled payment viable.

Medical Research: Were any of the findings unexpected?

Answer Yes, the participation of ambulatory surgery centers was unexpected. Two ASCs signed contracts with one health plan. While the volume of orthopedic procedures (insured by the three health plans) in the two participating hospitals was extremely low (just 35 cases in three years), the ambulatory surgery centers had higher volume (111 cases) over the same time period. Nevertheless, health plans have been slow to contract with ASCs despite their lower costs compared to hospitals.

Medical Research: What should clinicians and patients take away from your report?

Answer Despite the many challenges, IHA, health plans, hospitals, ASCs, and physicians continue to be interested in making bundled payment work – provided the problems faced in this project and others can be addressed. The lessons from this project may help future efforts to be more successful. The key may be in keeping the definition of bundles simple and findings ways to help manage the financial risk for health care providers. Future efforts may also include engaging patients in reducing health care spending by offering incentives (such as lower co-insurance rates) for patients who choose participating bundled payment providers for their hip or knee replacements.

Medical Research: What recommendations do you have for future research as a result of this study?

Answer Interest in bundled payments as a strategy to control health care costs has grown since adoption of the federal Affordable Care Act, which encourages the approach. Many private health plans are experimenting with bundled payment and federal officials have organized a national bundled payment initiative involving Medicare enrollees.

It is important that these efforts be carefully evaluated to see whether they can overcome the challenges faced in previous tests of bundled payment, and to make sure that payment reforms (such as bundling payment) do not negatively affect health care quality or patient outcomes. We hope that the lessons from this bundled payment project in California will help future bundled payment efforts to be more successful.


 Bundled Payment Fails To Gain A Foothold In California: The Experience Of The IHA Bundled Payment Demonstration

  1. M. Susan Ridgely
  2. David de Vries
  3. Kevin J. Bozic and
  4. Peter S. Hussey

doi: 10.1377/hlthaff.2014.0114 Health Aff August 2014 vol. 33 no. 8 1345-1352


Last Updated on August 5, 2014 by Marie Benz MD FAAD