Medicare unveils bundled payment models to start in 2012

Payment bundling for physicians and hospitals is the latest Medicare initiative that aims to improve quality and coordination of care.

By Charles Fiegl — Posted Sept. 5, 2011

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Physicians and hospitals will be collaborating to bid on providing high-quality, low-cost inpatient and postdischarge care to Medicare patients under a new payment option starting in 2012, the Centers for Medicare & Medicaid Services said.

Hundreds of interested hospitals and groups of physicians are expected to coordinate patient care under the new bundled payment initiative. Bundling payments is one of several models that physicians in organized medicine have encouraged the Medicare agency to use in place of traditional fee for service.

The Medicare fee-for-service system has been blamed for rewarding volume of care instead of quality. Payment systems should encourage hospitals and physicians to collaborate better on patient care, the Medicare Payment Advisory Commission wrote in a 2008 report. In particular, bundling payments across episodes of care could allow physicians and hospitals to limit the use of low-value services, coordinate patient care and work together to improve efficiency.

Under the initiative, created by the health system reform law, physicians and hospitals would come up with a plan and submit a bid to participate. Two of the bundled payment models focus on inpatient stays, a third involves postdischarge services only, and a fourth combines inpatient and postdischarge services. The earliest a group submitting a winning bid could get started with the first inpatient-only model is January 2012, said Richard Gilfillan, MD, acting director of the CMS Innovation Center. The other three models require more analysis and would not become active until later in 2012.

Dr. Gilfillan estimated that hundreds of groups will participate.

Valinda Rutledge, director of the patient care models group at the agency's innovation center, said: "Hospitals and physicians have felt that they wanted to work together in partnership to redesign care. They felt that they've had barriers in the past. What we're doing with this is eliminating those barriers."

The American Medical Association appreciates CMS' response to physician interest in the concept of bundling, said Cecil B. Wilson, MD, AMA immediate past president.

"We are pleased the initiative provides flexibility and a range of models," he said. "This may be an important opportunity to learn how to organize these approaches to improve patient care, quality, cost of care and practice economics."

The Association is reviewing the details of the bidding process. The AMA has urged CMS to provide technical assistance and data to interested physicians who might not have any experience with the new model.

Bids would propose a target price for an episode of care, such as the services needed to treat a patient who had a heart attack or fractured hip. Participants would receive discounted payments under the fee-for-service system, and at the end of the episode the total payments for the care would be compared to the target price. Those involved in providing the patient's care could share in any savings generated to Medicare. Groups can be held financially liable for missing the target price and would pay back money owed to the program.

The initiative allows physicians to redesign part of the health care system to coordinate care better, said Nancy H. Nielsen, MD, PhD, a senior adviser to the innovation center and a former AMA president.

"Physicians and hospitals have not always had the most equal relationship," she said. "This gives them the opportunity to come together as true partners for the benefit of the patient who's coming into the hospital."

The bundling initiative will work best in an environment where physicians and facilities already have established a working partnership involving good communication and coordination, said Kevin Bozic, MD, an associate professor at the University of California, San Francisco in the Dept. of Orthopaedic Surgery.

Bundling won't work where a facility is at odds with the physician, he said, because there needs to be an environment of trust in which the focus is on creating a higher value of care.

The bundled payment model "is not a threat to those that don't practice in these environments," Dr. Bozic said. "They just won't have the opportunity, but maybe they will seek an environment where they would."

Bundling has worked in the Geisinger Health System based in Danville, Pa., said Kevin Brennan, the system's executive vice president and chief financial officer. Geisinger has bundled payments for some episodes of care, and quality has improved significantly, he said.

Geisinger will evaluate whether it will bid to be part of the Medicare bundling program, but it already is involved in Medicare's physician group practice demonstration. Brennan did not believe Geisinger could participate in both programs.

The deadline to submit a nonbinding letter of intent for the first bundling model involving inpatient stays only is Sept. 22. Those interested in one of the other three models would need to submit a letter by Nov. 4.

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Four ways to bundle

Hospitals and physicians can choose from four bundled payment models under a new Medicare initiative.

Model 1 (inpatient stay only): Hospitals receive a discounted payment, but physicians receive full fee-for-service rates. CMS requires the minimum discount to Medicare to increase from 0% during the first six months to 2% in year three of the bid.

Model 2 (inpatient stay plus postdischarge services): Hospitals and physicians receive fee-for-service rates that are retrospectively reconciled with a target price. CMS requires a 3% minimum discount to Medicare for 30 to 89 days after discharge and a 2% discount for an episode that is 90 days or longer.

Model 3 (postdischarge services only): Hospitals and physicians receive fee-for-service rates that are retrospectively reconciled with a target price. The applicant proposes the discount amount to Medicare.

Model 4 (inpatient stay only): A payment amount is established prospectively for the admitting hospital, and the hospital distributes pay to physicians. The applicant proposes the discount amount to Medicare, at a minimum of 3%.

Source: Centers for Medicare & Medicaid Services, fact sheet on bundled payments for Care Improvement Initiative, Aug. 23 (link)

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