Bundled Payments Might Cut Hospital Costs Without Reducing Quality of Care

03.13.2010 - Value Based Purchasing

In the 1980s, when hospital costs were rising at unprecedented rates, Medicare applied the brakes by changing billing rules: Hospital administrators were required to bundle charges into diagnostic related groups, or DRGs.

Under this payment system, which still exists, hospitals receive a single payment for a patient's entire hospital stay: room charges, medicines, physical therapy, blood tests and more. The result was greater efficiency: a drop in cost and length of stay with no decline in quality of care.

Physician charges, however, are not included in the DRG payments, and doctors are still paid separately for each visit they make to a hospital patient.

Most health-policy experts agree that it's time this changed. Here's how it could work: The doctors and the hospital would receive one payment for a given treatment, such as an appendectomy or months of cancer care. Doctors and hospitals would develop a contract stipulating the fees each would receive for specific procedures.

Pilot programs have shown that this model works well.

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