When Designing Bundled Payments, Don’t Ignore The Lessons Of Behavioral Economics

In health care, all bundled payment models shift financial and clinical accountability to a single provider-led entity that then is responsible for a budget and the quality of care delivered for any given episode. The entity receiving the bundled payment earns a higher margin if a patient has fewer expenditures but also bears the financial risk of (re)admissions and complications. This payment model therefore produces an incentive for providers to coordinate care across settings and not to stint on needed care. When implementing bundled payment models, payers and providers can choose two main strategies regarding the payment flow, namely a prospective payment (which is made before services are rendered) or a retrospective payment (which is made after all services are rendered).

Currently, there is ongoing debate about which payment strategy to follow. In a June 2017 Health Affairs Blog post, François de Brantes and Suzanne F. Delbanco stated that the difference between retrospective and prospective payments is not significant in practice. Paraphrasing their line of reasoning, the difference between the two is believed to vanish as retrospective payments are often based on upfront, negotiated benchmarks as well. The authors continue by saying that people’s “aversion to losses” would make a case for including downside risk to retrospective bundled payments, as a way of mimicking the incentives that follow from prospective bundled payments.

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