Bundled Payment: Why Employers Should Care
Since the passage of the Employee Retirement Income Security Act (ERISA) in 1974, many employers, especially larger ones, have turned from the costlier practice of purchasing health benefits from health plans in state-regulated marketplaces. By “self-funding” employee health benefits, where the employer acts as a mini health plan, employers can avoid the weighted costs of state mandated benefits. But what looks like a good deal in the short run, over time, may lock employers in a long-term trap: low quality, fee-for-service (FFS) medicine. Inherently inflationary, FFS medicine forces employers to pay for an undefined product that actually rewards health care providers for making expensive, even lethal, mistakes.
Bundled payment, or episode of care payment, may sound to employers like another irrelevant abstraction from the health policy echo chamber, but here’s why employers should care: at least 40% of the money employers spend to pay for employee health benefits goes to things that either add no value or harm their employees. We call these events Potentially Avoidable Costs (PAC). For bottom-line companies who would never tolerate such an extreme defect rate from their normal business suppliers, it is routine from their health care vendors. FFS, the predominant reimbursement method for nearly all employers, masks this dynamic.