On August 23, 2011, CMS invited health care providers to apply to help test and develop four different models of bundled payments. This Initiative is part of CMS’ overall effort under the Affordable Care Act to better coordinate care among providers. Unlike the criticism CMS received regarding the complexity of the Shared Savings Program, by most accounts, this Initiative by CMS is viewed as a more manageable way for providers to begin applying bundled payment and other coordinated activities without restructuring their current models. Applicants are to identify the clinical conditions by diagnosis related groups (DRGs), define the duration for the episode of care and identify the services to be included in the bundled payment. Conditions of participation will include the implementation of quality assurance and improvement activities and participation in CMS quality reporting programs.
Goal:
The goal of the Initiative is to encourage and incentivize physicians, hospitals and post-acute care providers to better coordinate patient care, both during in-patient hospitalization and upon discharge, for the purpose of increasing quality and efficiency and reducing the costs of care.
Concept:
- CMS will link payments for multiple services a patient receives during a single course of treatment or single illness (“episode of care”).
- An episode of care will likely initially include common surgical treatments (i.e., hip replacement surgery, coronary arterial bypass surgery) that health care providers tend to view as being more profitable. However, we fully expect that, if successful, the program will evolve to include bundled payments for the treatment of chronic disease (i.e., cancer, congestive heart failure, diabetic care, etc.).
- Providers have the flexibility to define and price care bundles for Medicare beneficiaries.
- CMS has broadly defined four models of bundled payment arrangements. These are not intended to be mutually exclusive, and CMS encourages providers to apply for and implement multiple models. CMS has further clarified that participation in this Initiative does not prevent participation in an Accountable Care Organization under the Shared Savings Program. CMS has limited administrative barriers to experimentation by offering both retrospective and prospective bundling models. Retrospective bundling might be initially more attractive to independent physicians wary of having their reimbursement flow through a hospital.
- Additionally, CMS has specifically provided for gain sharing between and among the hospital and others, such as physicians, non-physician practitioners and other care settings (e.g., post-acute care facilities). In fact, hospitals may reward physicians and non-physician practitioners participating in the initiative with bonuses of up to 50% of their standard Medicare professional fees.
Bundled Payment Models:
Retrospective Payment Bundling
Model 1:
Episode of Care: The inpatient stay in a general acute care hospital, excluding physician services.
Payment: Hospitals will propose a discount of between 0% and 2% from the IPPS rate in exchange for the ability to gain share with physicians. Physicians will be separately paid for their services pursuant to the Medicare Physician Fee Schedule. Hospitals and physicians will be able to share gains resulting from better care coordination up to the established maximum.
Model 2:
Episode of Care: The inpatient stay in a general acute care hospital and a 30-day or 90-day period of related post-acute care, including related readmissions within a specified time frame.
Providers define the scope of the bundle. The bundle includes physician services, post-acute services and other services as proposed by providers (i.e., clinical laboratory services, durable medical equipment, prosthetics, orthotics and Part B drugs).
Payment: Providers price the bundle by applying a discount rate of 2% to 3% depending upon the duration of post-acute care included in the bundle. This discounted price will constitute a target price for the bundled services.
Providers will be paid for services provided during the episode at the traditional fee-for-service (FFS) payment rates.
CMS will then compare the actual FFS payments for the bundled services to the target price.
If the actual FFS payments to providers are less than the target price, then providers will receive a bonus in the amount equivalent to any savings reflected beyond the target price. If the actual payments to providers exceed the target price, they must refund the overage.
Model 3:
Episode of Care: Begins at discharge from an inpatient stay and ends no sooner than 30 days post-discharge. This model includes all post-acute care services, including inpatient rehab, long-term acute care, skilled nursing and home health.
Payment: Similar to Model 2, this model combines traditional FFS payment to providers with a reconciliation process.
Prospective Payment Bundling
Model 4:
Episode of Care: Inpatient stay only.
Payment: CMS will pay a single lump sum payment to the hospital to be disbursed to all providers (including physicians) involved in the delivery of care during the episode. This payment will encompass all services furnished to the beneficiary during the inpatient stay.
Providers select the DRGs for bundling and the discount rate. The bundled payment must be > 3% for the 37 DRGs used in the Medicare Acute Care Episode (ACE) Demonstration1 and at least 3% for all other DRGs.
The Fine Print:
The gain sharing arrangement must meet a number of criteria and must be transparent and auditable upon CMS request. Physician participation in the gain sharing aspect must be voluntary and those who elect to participate are required to meet specified quality thresholds. A full description of the gain sharing criteria in the “Bundled Payments for Care Improvement Initiative application” can be found here.
Additional Elements Necessary for Success under the Initiative:
Aside from properly structuring the gain sharing aspect to address potential Anti-Kickback and Civil Monetary Penalty concerns, economic success resulting from participating in a bundled payment program will require hospitals to carefully analyze care patterns and input costs to properly price a bundled care proposal. Accurate cost analysis and the determination of ways to tangibly reduce costs will be imperative to the creation of viable bundles of services.
Additionally, economic success will necessarily require hospitals and other participants to implement patient engagement strategies to promote their compliance and encourage a healthier lifestyle.
If you have questions or concerns regarding the foregoing or would like additional information, please contact Angela M. Smith at 317.977.1448
or asmith@hallrender.com, Brian Betner at317.977.1466 or bbetner@hallrender.com or your regular Hall Render attorney.
