Next Steps: Bundled Payments

Doctors, hospitals, and other health care providers now can volunteer to participate in a new Medicare program known as the Bundled Payments for Care Improvement initiative (Bundled Payments initiative), the Centers for Medicare and Medicaid Services (CMS) and the Department of Health and Human Services (HHS) recently announced.

This new initiative, established by the Patient Protection and Affordable Care Act (ACA), is intended to help improve care for patients while they are in the hospital and after they are discharged, and, ultimately, save money. Many experts believe that medical costs, and unnecessary and duplicative tests and procedures may be reduced by switching from the current fee-for-service payment system to a bundled payment for all medical services and supplies provided for treatment of a specific medical incident. This new Medicare payment initiative is expected to set an example for private sector payers.

The Bundled Payments initiative will make one bundled payment for services delivered across an episode of care, such as heart bypass or hip replacement, rather than paying for each medical service separately, as is currently done through fee-for-service. Bundled payments will give doctors and hospitals new incentives to coordinate care, improve the quality of care, and save money for Medicare, the HHS said. The program is expected to start in 2012.

Medicare and nearly all group payers currently pay separately for the services of hospitals, physicians, and other clinicians who provide care for beneficiaries. The new CMS initiative will bundle care for a package of services patients receive to treat a specific medical condition during a single hospital stay and/or recovery from that stay, known as an episode of care. It will promote better coordination of care, which can reduce unnecessary duplication of services, reduce preventable medical errors, help patients heal without harm, and, ultimately, lower costs for payers and patients.

The Bundled Payments initiative is being launched by the new Center for Medicare and Medicaid Innovation (Innovation Center), which was created by the ACA to carry out the critical task of finding new and better ways to provide and pay for health care to a growing population of Medicare and Medicaid beneficiaries, the CMS explained.

The Bundled Payments initiative is based on research and previous demonstration projects that suggest this approach has tremendous potential. For example, a Medicare heart bypass surgery bundled payment demonstration saved the program $42.3 million, roughly 10% of expected costs, and saved patients $7.9 million in coinsurance while improving care and lowering hospital mortality.

Under one of the bundled payment models, CMS would make a single, prospectively determined bundled payment to the hospital that would include all services provided 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.

More information about the initiative is available here.

Research on bundled payment results reviewed by the American Hospital Association in spring 2010 found the following:

Providers’ readiness to participate in bundled payment programs varies. Of the 734 hospitals that expressed interest in Medicare’s Heart Bypass Center Demonstration, 209 submitted pre-applications. Within a year of the introduction of Blue Cross Blue Shield of Massachusetts’ Alternative QUALITY Contract (BCBSMA AQC), about 20% of eligible providers had signed up for the payment program.

Bundled payment can spur quality improvement. This is especially true when bundled payment is paired with defined quality metrics. ProvenCare was coupled with 40 best practice steps based on the American Heart Association and the American College of Cardiology guidelines, and BCBSMA AQC has a performance incentive linked to a variety of nationally-recognized measures. ProvenCare reduced average length of stay (LOS) for heart bypass by 0.5 days and 30-day readmission rates by 44% over 18 months.

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