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Bundled Payments Are Seen As a Way to Reduce Health Care Costs Posted: December 14th, 2009

By Sanford Ellowitz

Sanford Ellowitz is a New York State licensed insurance agent. He is also a Certified Financial Planner and a Certified Employee Benefit Specialist. He has over 25 years experience in the insurance and financial services industries.

Making one payment to a hospital, which covers all expenses for an entire episode of an illness, is seen as a way to reduce health care costs.

One way being explored to bring about cheap health insurance is to bundle payments to hospitals, doctors and other health care providers. This new payment model, a single payment that covers both hospital and doctor fees, is meant to treat an entire episode of a condition or illness.

This is in contrast to the traditional fee for service model, where a fee is paid for each service performed during the course of treating an illness.

Cost Savings of 5.4 % Predicted

A 2009 analysis by the Rand Corporation predicts that implementing this system, even with the major obstacles that would have to be overcome to implement such massive change, could save the system about 5.4% over 10 years.

Saving Money By Coordinating Care

The intention is that with a single, set payment, hospitals may better control costs. By coordinating care among all the caregivers involved in treating a patient, This might also produce better patient outcomes, this might also produce better patient outcomes.

Hospital Studies Currently Under Way

The Center for Medicare and Medicaid (CMS) is currently studying the potential of this payment system to save money. As part of the study, which will take 3 years to complete, Medicare has negotiated a reduced rate from providers by bundling the payments for selected orthopedic and cardiac inpatient conditions.

Bundling Payments for Individuals

The state of Massachusetts is also looking to save money by bundling payments. Massachusetts is proposing to replace the current fee for service model; however, it proposes to do so by paying a set monthly fee for all the services provided for each covered individual. The new system is expected to be phased in over 5 years.

In either case, these attempts to save money put the financial risk on providers, who now must mange costs more tightly or risk losing money on each episode of a covered illness.

Widespread Adoption?

If recent studies on payment bundling find that significant savings are achieved, this new type of payment system may be adopted by CMS and Massachusetts, as well as by private insurers as a way to provide cheap health insurance.

Sanford Ellowitz