Improving Incentives Newsletter: Bundled Payments Require New Approaches to Clinical Integration

Improving Incentives Newsletter: Bundled Payments Require New Approaches to Clinical Integration

A Quarterly Publication of HCI3 Volume 1, Issue 4  |   January 2012


A Lawyer's Brief
Bundled Payments Require New Approaches to Clinical Integration

By Alice G. Gosfield, Esq.

Alice G. Gosfield ( is a lawyer and founder of Alice G. Gosfield & Associates, P.C., in Philadelphia. She is also HCI3’s board chair.

The shift to bundled budgets in health care is a means to an end. By moving away from the incentives for overuse in fee-for-service, the primary goal of this shift is to change physician behavior by aligning their financial incentives with those of hospitals.

Given that hospitals are paid on the basis of diagnosis-related groups (DRGs), they already have an incentive to manage costs within the DRG budget and so what they do to shift their behavior will be relatively minor compared with the effect physicians will have on care delivery when they begin to operate under bundled budgets. Unfortunately for hospitals, substantial waste remains, requiring them to continue to improve the quality and efficiency of care processes and the safety of their environments.

Conversely, the effect physicians will have on bundled payments will be quite substantial. Virtually everything that happens in hospitals derives from a physician's order. The admission or readmission, and what happens during either process, stems from a physician's request. Even though the two parties are financially linked and their collective success depends on their mutual collaboration, it's physicians who must do more to adapt to bundled payment. To achieve the full potential of these payment models physicians must join forces with each other explicitly.

Whether physicians are employed by hospitals or work in small community-based practices, in large multispecialty groups, or academic medical centers, the work they do with each other will be critical. "Clinical integration" in an antitrust sense is a important consideration, as HCI3 board member Robert F. Leibenluft explained in the July,, and September, http://tinyurl. com/74czmf2, issues of this newsletter. But clinical integration motivated simply by antitrust concerns will be insufficient to realize the promise of bundled payments.

What's needed is a new definition of clinical integration. Last year, James L. Reinertsen, MD, and I wrote a paper,, on this topic and suggested this definition: "Physicians working together systematically, with or without other organizations and professionals, to improve their collective ability to deliver high quality, safe and valued care to their patients and communities." Reinertsen is the founder of the Reinertsen Group in Alta, Wyoming, and a widely respected former CEO of a number of prestigious health care organizations.

The antitrust laws address the activities of economic competitors. Even within their own practices, though, physicians can achieve better results for their patients, and recapture time in their day, by standardizing far more of their environment to the best-known science. To do so, physicians will have to spend energy themselves to define their specific approaches to needed change. Under any new definition of clinical integration, it is important to distinguish past integration efforts from those needed now, which should be systematic and sustained over time. The effort expended on quality projects at a hospital or even positioning a practice to achieve patient-centered home recognition will be inadequate to the task at hand today. Systematic clinical integration by physicians requires action to address a variety of factors that affect how care is delivered and what it costs.

To facilitate this process, a new Clinical Integration Self-Assessment Tool (CISAT) is available online, Focusing on 17 attributes of a clinically integrated physician environment, the CISAT takes the perspective, on one hand, of a single practice group or a group of hospital or health system employed physicians, and, on the other hand, of the organized medical staff or a newly coalescing hospital-based accountable care delivery system. Among the factors to consider are these:

  • The structure and purpose of the new initiatives,
  • Governance and leadership mechanisms,
  • Supportive compensation models within the physician practice environment,
  • Delivering value—meaning improved quality while containing costs—is required of participants and is an essential challenge to physicians in bundled payment arrangements, and
  • Financial relationships with others, whether in joint ventures or comanagement agreements.

The last item on this list (financial relationships) can influence the ease or difficulty with which bundled payment is adopted. Perhaps the single strongest theme in true physician clinical integration is standardization in such areas as:

  • Clinical processes of care in accordance with evidence,
  • Documentation and the use of information technology,
  • To whom referrals are given and when,
  • From whom referrals are taken, and
  • The use of non-physician practitioners.

The CISAT describes three scenarios for each attribute, moving from those who have barely started to address these issues, to those who have begun to make an effort and including a description of the environment of committed and capable clinical integration. The CISAT can help physicians, and those working with them, to articulate a clear vision of what changes will be needed. Those physicians who would collaborate with other providers will not be ready to align effectively until they collaborate with each other to maximize the potential improvement from bundled payment or budgets.