What are bundled prices, and why should you care?

By Lars Hegstrom

In the current healthcare system, nearly all payment agreements can be described in one of three ways: capitation, fee for service, and bundles. Capitation has been implemented successfully in many primary care organizations, where the group receives a fixed payment that is usually described as a per member per month. Fee for service is the traditional model where physicians and hospitals bill for all of the individual services provided, often through submission of CPT codes. Bundled payments land somewhere in between the two, and are usually billed as a complete episode of care.

An analogy: getting a haircut. Imagine you’re visiting your local hair salon. Let’s see how the payment models translate into the non-healthcare world.

In the capitation model, everyone gets charged $45 per month. Doesn’t matter if you need a cut, color, shampoo, and all the other services provided, or you’re a male who simply wants a single length clipper. $45. The hair salon is incentivized to talk you out of the most expensive services, since that cuts into their profit. They would also be incentivized to limit how often you get your haircut, and from whom. The best hair stylists are expensive, and their $45 per month flat rate may not be able to cover their salary requirements.

In fee for service, every individual service gets charged. $0.35 for each squirt from the water bottle, $1.25 for each minute the blow dryer is turned on, $0.10 for each time the scissors are squeezed. The end result is that a price to cut your hair is presented in a range: $5 to $75. From a consumer’s perspective, a $10 haircut may be affordable, but a $75 cut is way out of their price range. In healthcare, it is common to not know how much your specific operation is going to cost until after all is said and done. A large percentage of Americans have been surprised by a the amount of a medical bill. Fee for service can be cited as the main cause of this, due to its inherent uncertainty on what your final price is going to be.

Bundled services is a model that is in the middle of capitation and fee for service. Various services are grouped together and sold as a package- in the same way most consumer products sold. Continuing our hair salon analogy, examples of bundles would be a men’s short haircut for $15, a long haircut for $25, coloring for $25, shampoo/conditioner for $10, etc. This provides a clear outcome for the consumer, while still allowing for varied payments for services that a unique person requires.

At Texas Free Market Surgery, we offer fixed, transparent, bundled prices for our operations. No hidden fees, tricks, or gimmicks. Our prices include everything required, with the exception of implantable devices, in which we provide an invoice for the cost before the operation. One wouldn’t expect this to be a shocking outlier in healthcare, but we’ve seen that we are one of only a few companies offering this type of payment option. Even fewer are willing to post their prices on the web for the world to see.

Why doesn’t everyone offer bundled prices? Part of the reason is that there are certain diagnoses that do not fit well into a bundled service. Diagnoses that do not have definitive underlying causes, and/or that patient outcomes that are difficult to predict. Intractable epilepsy, for example. But, for the majority of diagnoses, the reason bundled prices do not exist is that healthcare providers do not know how much it costs to deliver care. They don’t know how much an hour of OR time costs. They don’t know how much an outpatient visit costs. And they certainly don’t appreciate how much even a minute of a surgeon’s time cost. Rather than evaluating the costs of delivering care, they are focused on increasing revenue- passing the expense onto you, the consumer.