RAND Study: Tightly Scripted Bundled-Payment Programs Can Save Money and Convince Consumers

March 3, 2021
Researchers have published an article in Health Affairs based on a study of a bundled-payment program managed by Carrum Health that points to significant success in curbing costs and engaging enrolled consumers

Can employer-purchaser direct-payment programs designed to guide their employees to choose lower-cost healthcare providers, have a significant impact on costs for those employer-purchasers? The evidence, according to a study whose results were published in the March issue of Health Affairs, is a resounding “yes.”

“An Employer-Provider Direct Payment Program Is Associated With Lower Episode Costs” was authored by Christopher M. Whaley, Ph.D., Christoph Dankert, Michael Richards, M.D., Ph.D., and Dena Bravata, M.D. Christopher M. Whaley is a policy researcher in health care at the RAND Corporation (Santa Monica, Calif.); Christoph Dankert is senior vice president of provider partnerships at Carrum Health (San Mateo, Calif.); Michael Richards is an associate professor of economics at Baylor University (Waco, Tex.); and Dena Bravata is an adjunct affiliate in health policy at Stanford University (Palo Alto, Calif.)

A press release posted by Carrum Health to the company’s website on March 1 applauded the results of the study, stating that, “In a first-of-its-kind study of bundled payments for commercially insured populations, RAND Corporation highlights the significant financial savings that can be achieved through Carrum Health‘s digital Centers of Excellence (COE) platform. The study, published today in Health Affairs, the leading peer-reviewed journal of health policy thought and research, highlighted a more than 45 percent per procedure savings when procedures were performed through Carrum Health. Overall, employers achieved an 11 percent medical cost reduction after implementing Carrum Health across all covered procedures, including those not performed through the Carrum Health benefit. Patients also saved money as cost-sharing payments were waived for the 21 percent of patients who went through the program.”

And the press release quoted Christopher M. Whaley, Ph.D., healthcare policy researcher at RAND and the lead author of the study, as saying that, “While there is much empirical data on the impact of bundled healthcare for Medicare populations, not as much was known about the impact of these offerings on commercially insured populations. Our analysis of Carrum Health’s market-leading COE platform shows that both employers and patients can see immediate and significant savings on completed surgeries, while getting high-quality care from the top hospitals around the country.”

As Whaley and his fellow authors note in the abstract to their Health Affairs article, “Bundled payment has shown promise in reducing medical spending while maintaining quality. However, its impact among commercially insured populations has not been well studied. We examined the impacts on episode cost and patient cost sharing of a program that applies bundled payments for orthopedic and surgical procedures in a commercially insured population. The program we studied negotiates preferred prices for selected providers that cover the procedure and all related care within a thirty-day period after the procedure and waives cost sharing for patients who receive care from these providers. After implementation, episode prices for three selected surgical procedures declined by $4,229, a 10.7 percent relative reduction. Employers captured approximately 85 percent of the savings, or $3,582 per episode (a 9.5 percent relative decrease), and patient cost-sharing payments decreased by $498 per episode (a 27.7 percent relative decrease).”

That level of savings is significant. As the article’s authors note, “In response to variations in episode cost and quality, the Centers for Medicare and Medicaid Services (CMS) has experimented with two separate bundled payment programs for joint replacement surgeries: the voluntary Bundled Payments for Care Improvement (BPCI) initiative and the mandatory Comprehensive Care for Joint Replacement (CJR) model. Recent evidence from each program shows reductions in Medicare per episode spending, especially with respect to postacute care services. However, after provider bonus payments are factored in, the net savings to the Medicare program are relatively small.”

For the purposes of the study, the researchers studied a program created by the San Francisco-based Carrum Health, which states on its website that “Carrum Health directly connects progressive self-insured employers to top-quality regional healthcare providers through the industry’s first comprehensive bundled payment solution. Our innovative platform reimagines how care is paid for and delivered, improving the value of health benefits for employers and their members.” With regard to provider contracting, the company’s website states that “Full-service provider management with robust quality evaluation and standard bundled contracts. All bundles have a compelling price and readmission warranty. Adding new providers or procedures is fast and simple.”

Per that, the authors write in the Health Affairs article that “We evaluated a direct payments program developed by Carrum Health that was implemented among self-insured employers between 2016 and 2020. Under the program, prospective bundled payment contracts are negotiated with participating providers. These include academic medical centers, large for-profit health systems, faith-based nonprofit health systems, and surgeon groups.” They go into some detail outlining the mechanics of the program, noting pointedly that “The negotiated contracts are modeled after BPCI [the Bundled Payments for Care Improvement] Classic Model. The contracts hold the provider responsible for the surgical procedure, all preoperative care in the three days before the surgery, and any care to treat related complications, including readmissions, within a minimum of thirty days after the procedure. Notably, because providers—including surgeons—are at risk for any postoperative complications and readmissions, they typically engage proactively with patients to optimize them for surgery (as described below). Providers agree to these contracts to secure a higher volume of procedures, obtain timely reimbursement, and avoid the necessity of collecting out-of-pocket payments from patients,” they note.

One key element, the researchers note, is the “wide array of benefit communication efforts and financial incentives” that Carrum Health engages covered employees in, in order to encourage them to participate in their program. “Patients who receive care from participating providers have no cost sharing (for example, copayments, coinsurance, or deductibles). Further, patients are protected against balance bills for out-of-network service.” There are additional details referenced in the article that add further depth to the narrative. Importantly, under the program, “Approximately 30 percent of referred patients were recommended for conservative treatment instead of surgery (for example, physical therapy), and most of those patients followed the recommendation and pursued nonsurgical care. Further analysis is required to quantify how many of these patients would have gone forward with surgery had it not been for their interaction with the program. Participating providers are reimbursed for evaluating patients for appropriateness through a separate assessment bundle if the provider recommends nonsurgical treatment.”

Significantly, the researchers emphasize, “High and variable prices among the commercially insured population create a potential opportunity for savings by shifting patient demand from high-price to lower-price providers of similarly high quality. Purchasers are now looking to innovative approaches to encourage their enrollees to receive care from lower-price providers. This follows efforts by the Medicare program to adopt bundled payment programs for high-cost surgical procedures and thereby hold providers accountable for controlling both surgical and postoperative costs. Commercially insured direct payment models that leverage bundled payment structures can likewise harness the same underlying provider incentive improvements and may even further reduce spending as a result of the wide degree of price variation among commercially insured populations at baseline.”

Indeed, they stress, “In this study we found that the adoption of a direct payments program among a privately insured population was associated with a meaningful $4,229 (10.7 percent) reduction in procedure prices for three high-cost procedures, which was allocated to reductions in both employer ($3,582, 9.5 percent) and patient ($498, 27.7 percent) costs. The impacts of the program increased over time, potentially as both patients and providers learned about the program. Under the direct payments program that we studied, employers waived cost-sharing requirements for patients as a way to change patients’ choice of providers. Because employers bear the largest portion of costs, employers effectively received an approximately 700 percent return on waived cost-sharing payments. At the same time, employer health care spending is passed to employees in the form of lower wages and less generous health benefits.40 Lower employer spending could improve employee well-being if it results in higher wages or more generous health benefits.”

Following the publication of the article, Christopher Whaley, Ph.D. spoke with Healthcare Innovation Editor-in-Chief Mark Hagland about its findings and implications. Whaley, who has been at RAND for nearly five years, researchers healthcare policy issues, with a focus on healthcare costs and prices for the privately insured market in the United States. Below are excerpts from that interview.

What was it that you and your co-authors were hoping to find in your study?

This article itself took a while to come to fruition. I was introduced to Carrum through Dena Bravata, who made an introduction three or four years ago.

Clearly, there is price variation and there is quality variation in healthcare. An the question is, what can we do to get patients to go to lower-cost providers? And some of the programs don’t work well—just putting employees into high-deductible plans and giving them information about pricing. It was interesting to look at a program that benefits employer-purchasers but also benefits patients because they get information on high-quality, lower-cost providers. And it’s also beneficial for providers; and that’s an under-appreciated aspect. If you’re a provider and rank high, you get access to more patients. So providers get access to patients with less hassle.

What are the key elements that have made this program different and more successful?

You’re right that the prevailing mode is to give patients some limited information about prices and then put them into high-deductible plans, and send them out to make these decisions. And not surprisingly, this hope of having consumers navigate the healthcare system the way they might buy a car, doesn’t work that well. What works better here is rather than giving a patient ten different options, and making them estimating whether they might need physical therapy or rehab costs or look at other granular measures; it’s saying, we’ve already done that work for you. And you know what Johns Hopkins is or Stanford—a brand name you know—and just to go this provider, and everything’s going to be free. And for a patient, that’s a lot easier thing to do.

What are the key learnings around the right combination of incentives, information, and benefits?

Yes, one of the key learnings from this program and others that have worked out well, is to keep things simple. Part of the disappointment coming out of the high-deductible plans is that they’re not simple; in fact, they add to consumers’ stress. For a patient, it’s a lot easier to be given the incentive to go to a specific provider. It’s like when you’re driving down the highway, and you’re trying to adjust the radio volume and the heat or air conditioning, while driving.

Financial results, differentials, were you surprised, or were they about what you had expected?

Per financial outcomes, two surprises—one, that patient cost-sharing fell quite dramatically; and that’s actually important, because in many programs, patient cost-sharing goes up, and so you save money overall, but you’re putting additional burden on patients. So that was encouraging. And the second surprise was the overall net savings for the employer as a whole. So if you look at the people who went through the program, the savings was about 45 percent overall; so that highlights the level of opportunity around healthcare prices.

Also, if we know that we can save about 11-ish percent with about 20 percent of employees going through the program—if we were to go from 20 percent to 50 percent, the savings would scale accordingly.

You think it would stay at the same level?

Yes, I think so. If you take people out of higher-priced providers and move them into lower-priced providers, you’re going to save money.

Are there multiple variables that could make programs like this less clear of a win for employers and everyone?

There are multiple ways this kind of thing could expand: either by expanding the number of employers going through the program; expanding the number of employers; or expanding the range of services covered, beyond total joint replacement, for example. But the Loews and Walmart example is a good comparison to make. We didn’t have enough data in the study, but it’s true that many patients, when they are seen by a specialist, actually end up not getting surgery—up to 30 percent.

So averting surgery in some cases is a part of the savings?

Yes, we weren’t able to measure it, but yes, that is a part of the overall savings. And CalPERS did something similar to the Loews/Walmart program, and part of the savings did come from cutbacks in use. But there was no change in where patients went; so patients who did get the surgery ended up going to the same high-priced providers as before. But we did find in our study, pretty significant changes in where the patients went.

Do you think that this kind of program will inevitably accelerate, because of the cost pressures?

Yes, cost pressures from employers, who know they can’t keep raising deductibles year after year or essentially pay people in healthcare dollars instead of salary dollars, will push this forward. And we ended our data collection in late January 2020, but in that year, there’s been nearly a doubling of people who’ve gone through the program. So there does seem to be a strong growth because of the cost pressures.

And the other implication of this is that what’s going on in the background is that as we’re thinking of these measures, whether on the employer side or the federal side, we highlighted the value in keeping things simple for patients, payers, and providers, but also aligning incentives. To use another analogy, it is the three-legged stool. If it’s not an incentive for providers, they won’t participate; if there’s not an incentive for patients, they just won’t care; and if there’s not an incentive for payers and purchasers, they just won’t implement these programs.

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