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Medicine and Public Policy |

The Unintended Consequences of Bundled Payments

William B. Weeks, MD, MBA; Stephen S. Rauh, MBA, CFA; Eric B. Wadsworth, PhD, CPA; and James N. Weinstein, DO, MS
[+] Article and Author Information

From The Geisel School of Medicine at Dartmouth, The Dartmouth Institute for Health Policy and Clinical Practice, and Dartmouth-Hitchcock Medical Center, Lebanon, New Hampshire, and Stephen Rauh Consulting, Montpelier, Vermont.

Potential Conflicts of Interest: None disclosed. Forms can be viewed at www.acponline.org/authors/icmje/ConflictOfInterestForms.do?msNum=M12-1185.

Requests for Single Reprints: William B. Weeks, MD, MBA, The Geisel School of Medicine at Dartmouth, The Dartmouth Institute for Health Policy and Clinical Practice, 35 Centerra Parkway, Room 213, Lebanon, NH 03766; e-mail, wbw@dartmouth.edu.

Current Author Addresses: Dr. Weeks: The Geisel School of Medicine at Dartmouth, The Dartmouth Institute for Health Policy and Clinical Practice, 35 Centerra Parkway, Room 213, Lebanon, NH 03766.

Mr. Rauh: Stephen Rauh Consulting, LLC, PO Box 780, Montpelier, VT 05601.

Dr. Wadsworth: The Geisel School of Medicine at Dartmouth, The Dartmouth Institute for Health Policy and Clinical Practice, Novell Building, 30 Lafayette Street, Lebanon, NH 03766.

Dr. Weinstein: Dartmouth-Hitchcock Medical Center, 1 Medical Center Drive, Lebanon, NH 03766.

Author Contributions: Conception and design: W.B. Weeks, J.N. Weinstein.

Analysis and interpretation of the data: W.B. Weeks, S.S. Rauh, J.N. Weinstein.

Drafting of the article: W.B. Weeks, J.N. Weinstein.

Critical revision of the article for important intellectual content: W.B. Weeks, S.S. Rauh, E.B. Wadsworth, J.N. Weinstein.

Final approval of the article: W.B. Weeks, S.S. Rauh, E.B. Wadsworth, J.N. Weinstein.

Administrative, technical, or logistic support: W.B. Weeks, J.N. Weinstein.


Ann Intern Med. 2013;158(1):62-64. doi:10.7326/0003-4819-158-1-201301010-00012
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Consensus is building that episode-based bundled payments can produce substantial Medicare savings, and the Center for Medicare & Medicaid Innovation's Bundled Payment Initiative endorses this concept. The program generates potential cost savings by reducing the historic cost of time-defined episodes of care, provided through a discount. Although bundled payments can reduce waste primarily in the postacute care setting, concerns arise that, in an effort to maintain income levels that are necessary to cover fixed costs, providers may change their behaviors to increase the volume of episodes. Such actions would mitigate the savings that Medicare might have accrued and may perpetuate the fee-for-service payment mechanism, with episodes of care becoming the new service. Although bundled payments have some advantages over the current reimbursement system, true cost-savings to Medicare will be realized only when the federal government addresses the use issue that underlies much of the waste inherent in the system and provides ample incentives to eliminate capacity and move toward capitation.

Figures

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Figure.

Calculation of and response to bundled payments.

Top. Example of how bundled payment amounts for episode-based care are calculated. Bottom. How providers might respond to a bundled payment plan. Two provider responses to changes in revenues are considered: an increase in volume so that original revenue levels are maintained and an initial effort to control postacute care costs, followed by use of the newly generated postacute care capacity.

* Negative dollar amounts represent reduced health system revenues and Medicare cost savings; positive dollar amounts represent increased health system revenues and additional costs to Medicare.

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