J.K. Wall provides an apt analogy at The Health Care Blog of why hospital billing is so confusing:
If McDonald’s operated like a hospital, when you ordered a Happy Meal with a burger, fries and drink, you would be charged a separate price for the meat, bun, cheese, pickle, mayo and paper wrapper, the fries, carton and ketchup, the cup, ice and soda. And a separate price for using McDonald’s building to eat.
Then each price would be subject to a different discount negotiated by your nutrition insurance company, rendering all the prices you were quoted meaningless.
Not surprisingly, rather than taking your cash at the drive-through window, McDonald’s would have staff members inside each restaurant, beavering away to figure out what you owed. They would take 45 days to figure it out and, only then, mail you a bill.
Why do hospitals function this way?
Medicare.
The author claims that bundled payments will add transparency because it will simplify the billing process. Although this is true, once fee-for-service payments end, the quality of data Medicare will have to set administrative prices will be worse in the long-run since hospitals will no longer have incentives to accurately report all services that are completed since payments are made in a bundled fashion. Additionally, while bundled payments incentivize more cost effective care, they also may cause hospitals to avoid the most seriously ill patients; patients whose costs would be expected to exceed the reimbursement Medicare makes. Further, bundled payments only work well in areas with little innovation as improved technologies may improve the quality of care but can increase or decrease cost.
Bundled payment has a number of advantages over fee-for-service, but its limitations must be considered and addressed for bundled payment to improve patient outcomes and overall value.