Bundled payment has been very confusing to most physicians and hospitals. Employers and health plans as well as the government are coming to grips with the idea that bundled payment may finally signal the end of fee-for-service payment which has been, by its very nature, inflationary because the ONLY way providers can make MORE is to do MORE.

The arguments in the 1970’s over how much care was necessary and appropriate led to a more rigid capitation process whereby the provider was paid on a per member versus per procedure basis. Now, as we enter the period of post reform, we must have a tool to change behavior so we focus more on value rather than production of procedures.

Capitation alone does not change behavior

Several issues arose with the capitation model. While it provided advance payment providers for services based on volume of members many physicians thought they would somehow be involved with setting and owning this definition of necessary versus unnecessary care based upon quality guidelines they would establish.

The other issue related to how much payment a practice could manage. Would they take partial capitation for their own services? Would they take group capitation for a medical group or IPA network or would they take full capitation for physician and hospital components and ancillary services making them responsible, more that the purchaser, for medical management of every patient’s care from routine to complex?

In the early 1970s, we experimented with packaged pricing for maternity care and similar reproducible events that followed a similar pathway, always adjusting the package for events that were outside the norm of normal birth. This was then related to high cost specialty procedures such as orthopedic, heart, and other “standardizable” procedures. When the care exceeded the parameters of what was considered a normal pathway, additional costs were charged and this led to an indexed capitation.

From indexing capitation to global fees

This indexed method of assigning services and protocols based upon the needs of the enrollee led to global fees for all encompassing services tied to a diagnosis within a given risk corridor. The missing link here was finding out when the global definitions begin and end. The term Episode of Care began to define the treatment from early detection to an endpoint of treatment based upon the disease category as well as the patient’s health status. Arguments in the late 1960s led to a strong desire to apply statistical methods to the treatment of an illness based upon patient health status for select episodes of care.

Diagnostic Treatment Groupings to Episode Treatment Groups

In the 1980s we saw DRGs take hold around these basic principles and Episode Treatment Groupings (Symmetry) were analyzed and found to be statistically valid, comprehensive in nature, clinically meaningful and flexible enough to build repeat case mix adjusted groupings of disease category. It became the leading edge of metrics to measure performance and global payment demonstrations. Anthem’s Cardiology Network led the way for today’s bundling definitions around Episodes of Care which are now used by Intermountain, Health Services Corporation, Geisinger, Health Partners, Minneapolis, and Baylor University Health Services in Dallas.

Pendulum Health’s Role

Pendulum HealthCare Development Corporation has worked with Episodes of Care since 1985 and has established a working relationship with Johns Hopkins , QualMetrix, Med XMs in building upon this clinical framework of episodes and bundling payment methodology for shared savings plans for Accountable Care Organizations and purchasers of care. We see this knowledge base as a stepping stone to the use of developing Comparative Effectiveness Research (CER) planning for both physicians and purchasers as well as the life sciences industry.