Does the Employer-Provider Direct Payment Program Lower Episode Costs?

By | April 15, 2021

Bundled payments for episodes of services such as joint replacements are not a new concept. Throughout the years, the Centers for Medicare & Medicaid Services (CMS) have experimented with Bundled Payment Programs with limited success. After factoring in bonus payments to providers, the net savings to Medicare has been minimal, and on the positive side, there is no indication that quality has deteriorated.

The question that arises concerns the impact of such models on commercially insured populations. There have been attempts to establish commercial bundles; however, they have been plagued with administrative issues and a lack of provider desire to participate. Moreover, minimal research exists concerning an employer-to-provider direct payment program for a bundle of services during a 30-day period.

Recently, Health Affairs published a study by Whaley et al., entitled, An Employer-Provider Direct Payment Program Is Associated with Lower Episode Costs. The study found that after implementing bundled payments in a commercially insured population, there was a 10.7 percent relative reduction in costs. Interestingly, the employer captured 85 percent of the savings per episode, with the remaining 15 percent of the savings attributed to the employee. These savings were meaningful, $3,582 of savings per episode for the employer and $498 for the employee.

It is crucial to recognize that the employer’s savings are savings for all; they can transfer to the employee by lowering insurance premiums. Commercial payers have the advantage of benefit design. They can “steer” employees to either a specific network or participating provider by altering co-pays or the level of benefits. This direct payment model for bundled services creates increased affordability that is much more palatable by all parties. Admittedly, there have been concerns that such models would lead to cherry-picking by physicians to avoid higher-risk patients that might require more services, therefore being problematic in a fixed-fee model. However, this concern has not been observed in the Medicare data and can be offset by adjusting the payment for the bundle of services.

Some argue that by creating bundles for individual events, we will lose the idea of seeing the patient more holistically for their total cost of care. Another way to think about it is that global payment is nothing more than a bundle for all services that might be required or a bundle of bundles.

Currently, there is no single payment model that provides the answer to all our woes. Therefore, bundled payments in the commercial space are an intriguing model and potential solution that continues to gain attention and traction. Let us continue to explore payment models that lower unit costs of provided services and translates into greater affordability for the recipient.