Booz & Company has been studying bundles for several years, and we have a unique perspective on what works well and what doesn’t (see “The HEALS Approach to Bundles,” ). Moreover, we recently completed comprehensive surveys of stakeholders in the U.S. health system, including patients, employers, physicians and hospitals, and insurers. The results show that bundles are generating increasing momentum. The ACA is also fueling demand: It explicitly encourages bundling experiments and innovations, and more than 450 provider organizations have signed up as part of the demonstration and piloting phase. Although the precise impact of the ACA is still playing out, there is mounting evidence that bundles will be a critical part of any solution for the U.S. healthcare system—a means to deliver a higher-quality patient experience, achieve better results, and reduce costs.
Bundles didn’t materialize out of thin air. They are the culmination of 30 years of experimentation and innovation. In 1982, Medicare and Medicaid switched from a basic system, in which the government simply covered the costs of treatment retroactively, to a system involving something called diagnosis-related groups (DRG). That approach established fixed payments for the treatment of specific conditions. The basic idea was right, and the DRG system survives to this day, but it has proven to be overly complex and “game-able”: The number of diagnoses is now in the tens of thousands.
In the 1990s, Michael Porter and others argued that hospitals and physicians should move away from “services” and focus on packaged clinical “products.” More recently, private-sector efforts have involved regional and national hospitals working with selected large employers (and their insurers). Walmart, for example, now has a bundled care program in which its employees can receive 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 Walmart employees are located throughout the U.S., the flat fee for treatment includes airfare and lodging for the employee plus a companion. (International “medical tourism” is another example of this approach, with flat fees for procedures.)
It’s worth noting that bundled care involves much more than merely grouping services with a single provider and setting a fixed price. The collaboration element among different roles is crucial, meaning that the method of delivering care will actually improve over time—akin to the continuous improvement concept in manufacturing. This isn’t paint-by-numbers medicine; it involves scientifically validated best practices, which constantly get reviewed and refined. It also includes in-depth counseling and guidance for patients about what they can expect (clinically and financially) at each step in the process. And advanced IT plays a major factor in enabling bundled care by tracking actual care inputs, patient outcomes, and costs. Without the industry’s new system of interoperable electronic health records and information exchanges (now being rolled out nationwide), this method of delivering care couldn’t exist.
Although bundles are currently limited to a relatively small number of acute conditions, the idea could potentially apply to both inpatient and outpatient care, including chronic conditions that require behavioral and lifestyle changes (such as diabetes). In fact, the model could ultimately constitute the majority of revenues for hospitals, physicians, and other providers. If that were to happen, it would significantly bend the cost curve for healthcare in the United States.
Current Market Perceptions
To gauge the market perceptions of bundles, we surveyed various players in the healthcare system over the past year: consumers, employers, providers (hospitals and physicians), and insurers. The results were encouraging, and they show that the idea holds broad appeal.
Consumers are ready; employers are cautious. Our survey of more than 1,000 consumers revealed that a substantial majority (78 percent) find the concept of bundled care to be appealing, especially its potential for greater clarity and transparency, along with potentially lower out-of-pocket expenses. These attitudes held almost regardless of respondents’ age, health status (sick versus well), or type of insurance plan (PPO, HMO, high-deductible, and so on). But consumers do have some concerns—for example, many have serious reservations about traveling any significant distance to receive care.