Dr. Deirdre Baggot Discusses Some of the Roadblocks to Bundled Payments in Healthcare


One of the biggest problems with the healthcare system in the United States is actually the way it is structured. Each healthcare provider is only focused on a small portion of a patient’s needs; plus, they all have separate billing departments. This structure does not align with the way a patient actually receives care. This means that it is unlikely any single caregiver or doctor has a clear view of a patient’s treatment in regards to cost, quality, and patient experience. What is even worse is that patients become passive participants, getting shuffled from one medical office to the next without much say in their own care.

This is where Deirdre Baggot PhD comes in. Baggot is an expert in her field and one of the most respected voices in the area of healthcare payment reform. She has made it her life’s work to advise innovative hospitals, health plans, and employers on a promising new approach: bundled healthcare. According to the Institute for Healthcare Improvement, a bundle is:

“A structured way of improving the processes of care and patient outcomes: a small, straightforward set of evidence-based practices — generally three to five — that, when performed collectively and reliably, have been proven to improve patient outcomes.”

In response to the shortcomings of the current healthcare structure in the United States, bundles include all the elements of clinical care and support for specific procedures or conditions in one simple package, at a set price. These bundles give patients added protection including warranty’s on results. Unlike traditional healthcare, if something goes wrong during a procedure, the doctors simply fix it and don’t charge extra. Bundles are best suited for acute and chronic conditions that have standard and agreed upon methods of treatment. These conditions tend to have consensus amongst the medical community in regards to optimal procedures with the highest rates of success. Providers can also share data over time to continually improve patient outcomes and share best practices. This reduction in inefficiencies in turn reduces the cost of care and improves overall success rates.

Believe it or not the notion of bundled healthcare has been around for quite some time. Bundles have been tried in various forms over the years, and today they are the result of over 30 years of experimentation and innovation. The first major shift towards bundled payments occurred in 1982. In an attempt to reduce costs, Medicare and Medicaid switched from the basic system of covering the cost of care retroactively to a payment system based on diagnosis-related groups (DRG). That approach created the foundation for bundled healthcare by establishing fixed payments for the treatment of specific conditions. The system worked – in fact, it is still in use today. However, it has many flaws; the number of diagnoses in the DGR system has grown to the tens of thousands making it too complex and easily defrauded.

In the 1990’s, industry experts argued that hospitals and physicians should move away from the system of paying for each service and focus on bundles to improve efficiency. Even the private sector is working with regional and national hospitals and with selected large employers to expand the use of bundled healthcare. By forging long-term collaborative client relationships, Baggot has designed and implemented this new payment model for employers, commercial payors, Medicaid and Medicare in over 200 hospitals. Walmart is one of the most notable examples of a large company implementing a bundled care program similar to those she has executed for other companies.

Through the use of bundles Walmart offers its employees treatment for a number of common procedures, including joint replacement and heart surgery, at leading hospitals such as Mayo Clinic, Cleveland Clinic, and Geisinger Health System. Because of Walmart’s sheer size, its employees are scattered across every state in the U.S. However, the flat fee the bundle provides for treatment is still profitable even when it includes airfare and lodging for an employee and their companion for some medical treatments.

It is evident that business leaders outside the healthcare industry have a role to play in the expansion of bundled care. It is up to them to ensure that the health plans they provide consider bundled care as an option for their employees. The business world should also take a longer term and sustainable approach to its healthcare choices without being drawn in by the temptation of immediate savings at the expense of long-term growth and profitability. Since bundling is a relatively new concept, the early benefits for business will come in the form of outcomes like healthier and happier employees rather than lower costs.

Large employers like Walmart can be more active by leveraging their size. This would involve working directly with the health plan and leading providers to advance the development and penetration of bundled care. When you take into consideration the number of employees who are all potential patients that these large corporations provide, bundled healthcare can achieve the desired cost saving effect of enrolling the vast majority of average customers. Achieving this will help a large company’s bottom line, their workforce, and the nation as a whole.

Baggot notes that beyond cutting cost for healthcare providers and patients, the bundling actually improves care and the improvements expand over longer periods of time. This is because bundled care is more complex than simply grouping services together with a single provider and setting a fixed price – It is the collaboration between the group of medical professionals, all with a different role in the process, that is critical to the bundle’s success. Many of the benefits bundles provide have been compared to the continuous improvement concept found in the manufacturing industry.

Similar to the continuous improvement model, bundling involves gathering data from scientifically validated best practices in order to continuously review and refine medical techniques and practices. Bundled health care also utilizes in-depth counseling and guidance for patients both clinically and financially throughout their care to clearly outline the process and set clear expectations. Technology and advanced IT is the backbone that makes all of this possible by enabling bundled healthcare providers to track actual care inputs, patient outcomes, and costs. Without the advent of new electronic health records and information exchanges, bundled healthcare simply could not exist.

Other advances in technology will need to be exploited in order to make headway in the reform of the healthcare system. Big data and complex analytics will be essential tools in managing the total cost of care. CMS recently announced that in an effort to improve its data transparency it would be making Medicare Advantage data publicly available the same as it did with Medicare fee-for-service data. Over the last three years CMS has released more data than it has in the 30 years before combined. The reason for the continued transparency is to make the data available for providers to understand how to manage populations over time. This is a very big step in the right direction; however, the vast majority of patient data remains stored on paper and hard drives.

This vast treasure trove of missing data is preventing doctors, nurses, and patients from exploiting the information that is currently available to us. This lack of ability for physicians and other care team members to access valuable decision-making information at the point of care is creating a gap for many healthcare organizations. This gap means that often times a physician who is trying to provide the best possible care for their patients has to wait months to learn the patient’s outcome, the feedback loop can even take a year in some cases. In business this type of lag time would be catastrophic.

Dr. Baggot is on the cutting edge of a continuously evolving concept and she sees endless potential for hospitals and healthcare systems in the United States to lower costs, improve quality, and deliver a better patient experience. Drawing on her experience as a clinician and hospital executive who pioneered bundled payments by leading the CMS Acute Care Episode (ACE) bundled payment demonstration at Exempla Healthcare, Deirdre Baggot has built and led consulting practices focused on value-based strategy and payment innovation.

Although bundles are currently limited to a relatively small number of acute conditions, the idea could potentially apply to both inpatient and outpatient services encompassing a range of chronic conditions, like diabetes, that require changes to a patient’s behavior and lifestyle. Baggot believes bundled healthcare will one day account for the majority of hospitals, physicians, and other healthcare providers revenue. This trend is certain to significantly reduce the cost of healthcare in the United States.

Working with this diverse group of organizations has given Baggot the insight and expertise to generate some of the best results in the industry in terms of reducing costs, improving quality and improving patient experience via care model transformation. Her life’s work has made her a trusted advisor to health system boards and senior leadership; she served as an expert reviewer to CMS for the Bundled Payments for Care Improvement Initiative and also served as an advisor to the New York Medicaid bundled payment pilots.

As an advocate for bundled healthcare, Baggot has uncovered some of the biggest challenges standing in the way of progress for our healthcare system related to the need for bundling. Despite all the promising research and success stories surrounding bundled healthcare, efforts to capitalize on the idea have been limited to a few large companies and national hospitals. There is still a long way to go before bundles will make any progress towards transforming healthcare. Baggot notes that the industry needs to discover new ways to expand bundled services into a wider range of conditions and a broader customer base. The main focus will need to be on average patients and employers who make up the majority of the healthcare customers in the United States. Until patients in this large market can receive bundled care for most of their needs, the strategy’s potential will remain untapped.

doctor deirdre baggot
Deirdre Baggot, Ph.D., MBA, BSN

This task falls primarily on payors and providers, who will have their hands full with the challenges of expanding and scaling up bundled care. Within the industry it will be imperative to seek administrative and physician leaders who are visionary and who have respected influence amongst their peers. The current attitude surrounding the restructuring of healthcare is to make it a secondary priority without committing time and attention to leading this important transformation.

While many hospitals and healthcare systems have built solid relationships with their medical staff, this is not always the case. The quality of an organizations relationships with its physicians is directly related to the level of success it can expect when managing bundles. When physicians are not engaged it is very difficult to bring about change within and organization, which means continued waste, duplication, and mediocre clinical outcomes. It will require senior administrative leadership who can cut through the red tape and remove barriers, along with practicing physicians who have broad influence within an organization to ensure success.

Providers are faced with the challenge of redesigning care. As costs continue to rise there is an ever-growing need for a different approach. Even within the same medical group the process for prepping a patient for surgery can be radically different from one group to the next. There is a widespread lack of understanding when it comes to systems improvement across the healthcare industry. This lack of communication needs to be addressed by developing standards and protocols, and utilizing the best IT resources at the industries disposal.

While technology, AI, telemedicine, apps, and other solutions are providing some relief, some simple fixes still need to be adopted to help standardize the industry and ensure success. Some of the most helpful solutions could be for physicians within their internal peer group to share data in order to reduce clinical variation, adding metrics to service line report cards related to cost and clinical variation, updating order sets and protocols to reflect the most current trends, being more prescriptive with discharge ordering, setting expectations with patients around post-discharge care, and patient engagement with respect to medication adherence and ER avoidance. Small changes like this can align healthcare providers to a bundled care system and also net big returns.

Improving Healthcare

The fallout from redesigning our approach to healthcare is bound to strain coordination efforts. Payors will be faced with servicing hundreds of employers and a few dozen providers in any given market or region in the country. Developing bespoke care protocols, payment formulas, and administrative systems for each program is not a realistic option. However, in order to deal with the demand, payors and providers will be able to focus on common areas of cooperation and development. Most prevalent will be the standardization care bundle definitions. It is also likely that a new industry of businesses designed for the purpose of publishing care protocols and providing sophisticated IT tools for managing bundles will be created during the transformation. Baggot believes that without this kind of cooperation, bringing bundled care to the majority of average healthcare customers could take decades.

When trying to understand the complexities of the healthcare industry and managing total cost of care it is important to take in some key factors. Healthcare organizations that are thriving in today’s highly competitive market are doing so because their leadership has bundling a priority and given it the focus that it deserves. Organizations that are struggling have not innovated when it comes to managing total cost of care. Payment reform like bundling gives healthcare providers the opportunity to reconceive their business model. The healthcare landscape today poses both complex challenges and tremendous strategic opportunity to pioneer new ways of delivering healthcare value. If industry transformation requires anything of board members and senior executives, it is focus. Payment reform and bundled healthcare is continuing to evolve.

Deirdre Baggot Looks To The Future

The first-generation applications of bundled care that Dr. Baggot has seen so much success with is nowhere near its full potential. Just because the healthcare industry has many hurdles in its way before realizing its full potential, is not an excuse for us to do nothing. Healthcare in the United States is still the most expensive in the world. When compared to other wealthy nations, the United States has the lowest average life expectancy, highest infant mortality rates, and is least efficient. Even though U.S. citizens pay more than double the price for healthcare than the top performing countries do, we get inferior care.

So, while fixing healthcare in the United States seems daunting, complex, and highly political, it is important to remember that there is no other concentration of highly educated, inventive, and industrious people on earth capable of tackling this problem. Business and industry leaders are highly capable of stepping in and filling in the blanks on the road to success. Humility, failure tolerance, innovation, and smart execution will guide leaders as they sort out what systems work best. Inevitably bundled care is going to be at the heart of any new system simply because of the structures ability to deliver better results, reduce costs, and deliver a higher quality patient experience.






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