CMS Trials Bundled Payments for Episodes of Care

Medicare officials on Tuesday proposed yet another care payment structure, and this one has hospitals and physicians receiving bundled payments for specific episodes of patient illness that extend well after the patient leaves an acute care setting.

"Instead of paying for each care separately, CMS (the Centers for Medicare & Medicaid Services) will provide one lump payment to providers for an episode of care," Secretary of Health and Human Services Kathleen Sebelius said during a news briefing.

"For example, a hospital could get a single bundled payment for treating a heart attack that includes the hospital stay and any procedures, as well as rehabilitation during recovery," she said. "That gives the hospital the incentive to make sure the patient gets the right care, not just while he or she is in the hospital but also after they leave the hospital, whether it's taking the right medications or eating the right diet or getting the right wound care."

"And if the hospital keeps the patient healthy and limits the amount of extra care they need, they come out ahead," Sebelius said.

This formal bundled payment mechanism stems from numerous and successful demonstration projects at a number of large hospital systems around the country. It was specifically called for in the Patient Protection and Affordable Care Act.

According to an HHS statement, a current Medicare heart bypass surgery bundled payment demonstration saved $42.3 million, or 10% of expected costs, and saved patients $7.9 million in co-insurance. Care was improved and hospital mortality was reduced, federal officials said.

The new bundling concept, which includes four models that hospitals and other providers would have to choose to apply for, will be run through the recently constructed Center for Medicare Innovation. 

CMS officials said they "expect hundreds of organizations" will apply, but not all will be selected for participation. The various models allow providers to have "flexibility to determine which episodes of care and which services would be bundled together," HHS said in a statement.

"Several of the models actually include services that hospitals are not being reimbursed for today," Acting Innovation Center Director Richard Gilfillan, MD, said during the briefing.

In an interview after the briefing, Gilfillan said, "these approaches are going to create space and opportunities for doctors and hospitals to come together and jointly, together, redesign care in ways that imbed the best evidence-based care that we know of..."

He added, "Hospitals have long wanted to do this but often doctors haven't had the chance or the ability to take time out of their busy schedules. These opportunities give doctors and hospitals the ability to come together, to work hard to identify the best evidence-based care for particular services for patients whether they are in the hospital or after they leave."

Three of the four models involve retrospective bundled payment arrangements negotiated between CMS and providers that would include a target price, based on a discount of total costs for a similar episode of care as determined from historical data. Participating providers may be able to share in the savings, which is the difference between original Medicare fee-for-service system and the negotiated discounted bundled payment.

Model 1
The episode of care would be defined as the inpatient stay in a general acute care hospital. Medicare will pay the hospital a discounted amount based on Inpatient Prospective Payment System payment rates. Physicians would be paid separately for their services under the Medicare Physician Fee Schedule, but hospitals and physicians will be permitted to share gains arising from better care coordination.

Letters of intent for Model 1 are due by Sept. 22, and the program is expected to begin on Jan. 1.

 Model 2 *
The episode of care would include inpatient stay and post-acute care and would end either 30 or 90 days after discharge.

Model 3 *
The episode of care would begin at discharge and would end no sooner than 30 days after discharge.

The bundle would include physicians services, care by a post-acute provider, related readmissions, and other services defined such as lab services, durable medical equipment, prosthetics, orthotics and supplies and Part B drugs. The target price will be discounted from an amount based on the applicant's historical fee-for-service payments for the episode. Reductions in expenditures beyond the discount reflected in the target price will be paid to participants to share among participating providers.

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.

Letters of intent for models 2-4 are due Nov. 4. These programs would begin in late spring, 2012.

Administration officials described the bundled payment program as one that will unite hospitals and physicians in a common goal they do not now have because payment is based on volume and service provided, not on coordinated care.

"Physicians and hospitals have not always had the most equal relationship," said Nancy Nielson, MD, Innovation Center Senior Adviser. "This gives them the opportunity to come together as true partners for the benefit of the patient."

Nielsen added, "Think about the number of things that happen: in the emergency room, radiology, anesthesiology, surgery, medications. It's very complicated and the point here is (to say there will be) no more barriers between the people who need to redesign that care."

During the news briefing, Valinda Rutledge, Director of the Innovation Center's Patient Care Models Group, emphasized that in order to approve hospitals under Model 1, "we want to know what physicians and other providers are part of this, and we want to see letters of support. So if we get an application that doesn't look like it's very robust, in terms of the number of physicians that are participating in it, and they have a medical staff of 500 or 600, and we see only five letters of support, that will raise a lot of questions for us."

"The beauty of innovation is unleashing the creativity and energy of people, who now know if they are focused on delivering the best outcomes of patients, they don't have to be worried about whether they're going to get paid for this service or not paid for that service. And therefore, people will come up with the best way to deliver care that may involve services that we can't even conceive of today.

Initial reaction to the Obama Administration's bundled payment proposal was positive.

"The current system hospitals paid one way, doctors paid another way, and post acute care paid another way," said Blair Childs, senior vice president of Public Affairs for Premier Healthcare Alliance, a quality improvement and purchasing organization with 2,400 provider members. "What this does, it links them all."

Cecil B. Wilson, MD, immediate past president of the American Medical Association, said: “The AMA appreciates CMS' responsiveness to our interest in bundled payments. We are pleased the initiative provides flexibility and a range of models.  This may be an important opportunity to learn how to organize these approaches to improve patient care, quality, cost of care, and practice economics."

"We look forward to reviewing the details of the application criteria, and we urge CMS to encourage applications for physician-led bundling initiatives. We urge CMS to be prepared to provide technical assistance and data to interested physicians who may not have experience with bundled payment models.”