CMS Seeks Partners to Develop Models for the Bundled Payment Initiative


Will bundled payments improve coordination, quality, and efficiency and lower costs of health care services under Medicare?

That is the goal of the Department of Health and Human Services’ (HHS’) Bundled Payments for Care Improvement Initiative. The initiative was established by §3023 of the Patient Protection and Affordable Care Act (PPACA) (P.L. 111-148), which requires the HHS Secretary to implement a “National Pilot Program on Payment Bundling,” by January 13, 2013, focused on integrated care for Medicare beneficiaries during an episode of care that involves services during a hospitalization and post acute care provided after discharge.

Medicare currently makes separate payments to providers for the services they furnish to beneficiaries for a single illness or course of treatment, leading to fragmented care with minimal coordination across providers and health care settings. Payment is based on how much a provider does, not how well the provider does in treating the patient, HHS stated in its news release. Under the Bundled Payment initiative, CMS would link payments for multiple services patients receive during an episode of care. Instead of generating multiple claims from multiple providers, the entire team would be compensated with a “bundled” payment that provides incentives to deliver health care services more efficiently while maintaining or improving quality of care, HHS explained. 

CMS will work in partnership with providers to develop models of bundling payments through the Bundled Payments initiative. Providers have flexibility to determine which episodes of care and services will be bundled together. By giving providers the flexibility to determine which model of bundled payments works best for them, HHS believes that providers of different sizes and readiness will more readily be able to participate in the initiative.

The types of services this pilot program will apply to include:

  • (1) acute care inpatient services;
  • (2) physicians’ services delivered in and outside of an acute care hospital setting;
  • (3) outpatient hospital services, including emergency department services;
  • (4) post-acute care services, including home health services, skilled nursing services, inpatient rehabilitation services, and inpatient hospital services furnished by a long-term care hospital; and
  •  (5) other services the Secretary determines appropriate.

The Models:

HHS has outlined four broad approaches to bundled payments. Three models involve a retrospective bundled payment arrangement, and one model would pay providers prospectively. 

Retrospective payment bundling. In these models, CMS and providers would set a target payment amount for one of three models of episodes of care. Participating providers would propose the target price, which would be set by applying a discount to total costs for a similar episode of care as determined from historical data. Participants in these models would be paid for their services under the Medicare fee-for-service (FFS) system, but at a negotiated discount. After the conclusion of the episode, the total payments would be compared with the target price. Participating providers may then be able to share in those savings.

  1. Model: Hospital services provided to a beneficiary during an acute inpatient stay;
  2. Model: Services provided during an inpatient stay and after discharge to the home or other care setting; or
  3. Model: Post-acute care services after discharge from an acute inpatient stay.

In models 2 and 3, components of the bundle may include clinical laboratory services and durable medical equipment.

Prospective payment bundling.

Under Model 4, CMS would make a single, prospectively determined bundled payment to the hospital that would encompass all services furnished during the inpatient stay by the hospital, physicians, and other practitioners. Physicians and other practitioners would submit “no-pay” claims to Medicare and would be paid by the hospital out of the bundled payment.

The Bundled Payments initiative is based on research and previous demonstration projects that suggest this approach has tremendous potential, HHS said. HHS’ fact sheet notes that research has shown that bundled payments can align incentives for providers, including hospitals, post acute care providers, doctors, and other practitioners, to partner closely across all specialties and settings that a patient may encounter to improve the patient’s experience of care during a hospital stay in an acute care hospital and during post-discharge recovery. Medicare and private health care providers have shown that bundling payments improves care for patients and leads to better health, better care, and lower costs.

Although Medicare bundled payment demonstrations have been successful, health systems participating in the initiative must obtain physician buy-in and allay fears related to how bundled payments will be distributed by hospitals and the impact on quality of care. 

Has your health system taken participation in the bundled payment intiative into consideration? If so, what were the determining factors and how will it be ensuring physician buy-in?