Improving Care Coordination and Lowering Costs by Bundling Payments

The Affordable Care Act provides a number of new tools and resources to help improve health care and lower costs for all Americans.  Bundling payment for services that patients receive across a single episode of care, such as heart bypass surgery or a hip replacement, is one way to encourage doctors, hospitals and other health care providers to work together to better coordinate care for patients both when they are in the hospital and after they are discharged. Such initiatives can help improve health, improve the quality of care, and lower costs.

The Centers for Medicare & Medicaid Services (CMS) is working in partnership with providers to develop models of bundling payments through the Bundled Payments initiative.  On August 23, 2011, CMS invited providers to apply to help test and develop four different models of bundling payments. Through the Bundled Payments initiative, providers have great flexibility in selecting conditions to bundle, developing the health care delivery structure, and determining how payments will be allocated among participating providers.

Reducing Fragmented Care

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.  Under the Bundled Payment initiative, CMS would link payments for multiple services patients receive during an episode of care.  For example, instead of a surgical procedure generating multiple claims from multiple providers, the entire team is compensated with a “bundled” payment that provides incentives to deliver health care services more efficiently while maintaining or improving quality of care.  Providers will have flexibility to determine which episodes of care and which services would be bundled together.

Research has shown that bundled payments can align incentives for providers – 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.

Models of Care to Bundle Payments

The Bundled Payments initiative is seeking applications for four broadly defined models of care.  Three models involve a retrospective bundled payment arrangement, and one model would pay providers prospectively.  By giving providers the flexibility to determine which model of bundled payments works best for them, it will be easier for providers of different sizes and readiness to participate in this initiative.

Retrospective Payment Bundling

In these models, CMS and providers would set a target payment amount for a defined episode of care.  Applicants 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 Original 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.

Providers have the flexibility to choose whether to define an episode of care as:

• Hospital services provided to a beneficiary during an acute inpatient stay, where physicians are partners in improving care (Model 1);
• Hospital, physician, post-acute provider, and other Medicare-covered services provided during the inpatient stay as well as during recovery after discharge to the home or another care setting (Model 2); or
• Hospital, physician, post-acute provider, and other Medicare-covered services beginning with the initiation of post-acute care services after discharge from an acute inpatient stay (Model 3).

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.

A side-by-side comparison of key features of the four models is available here.

For Model 1, letters of intent for the initiative are due on September 22, 2011 and for Models 2, 3 and 4, they are due on November 4.  The extra time for Models 2, 3, and 4 is to allow potential applicants to complete request forms for historical Medicare claims data that will aid in developing episode definitions. The program is expected to start on a rolling basis in 2012.

Proven Results with Bundled Payments

Both 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. 

• During the five-year Heart Bypass Center Demonstration (started in 1986) Medicare saved $42.5 million – or 10 percent – on Coronary Artery Bypass Graft surgery at participating hospitals  in Atlanta, Columbus, Ann Arbor (Michigan), and Boston, largely through improved hospital processes and a reduced need for intensive care.  Medicare patients saved $7.9 million in coinsurance payments.
• Medicare’s three-year cataract surgery demonstration (started in 1993) was also successful in reducing Medicare spending by $500,000 for approximately 7,000 procedures at sites in Cleveland, Dallas/Fort Worth, and Phoenix.
• The fixed price for Coronary Artery Bypass Grafts (CABG) under Geisinger’s ProvenCare reduced costs and improved patient care showing that hospital costs dropped 5 percent, average length of stay fell by 0.5 days, and the 30-day readmission rate fell 44 percent over 18 months for Pennsylvania hospitals in Geisinger’s network.

Better Health, Better Care, Lower Costs

Bundled payments are just one part of a wide-ranging effort by the Obama Administration to improve the quality of health care and lower costs for all Americans, using important new tools provided by the Affordable Care Act.  Accountable Care Organizations (ACOs) are another way that doctors, hospitals and other health care providers can work together to better coordinate care for patients, which can help improve health, improve the quality of care, and lower costs.

The National Quality Strategy provides strategic direction for ensuring progress toward delivery system reforms that reward quality rather than the volume of services provided.  The recently launched Partnership for Patients is bringing together hospitals, doctors, nurses, pharmacists, employers, unions, and State and Federal government to keep patients from getting injured or sicker in the health care system and to improve transitions between care settings.  CMS intends to invest up to $1 billion to help drive these changes through the Partnership initiative, which it projects will save Medicare $50 billion over 10 years. And beginning in FY 2013, for the first time, the Hospital Value-Based Purchasing program authorized by the Affordable Care Act will pay hospitals’ inpatient acute care services based partially on care quality, not just on the quantity of the services they provide.

A brief summary of HHS initiatives to improve care, including information about new initiatives authorized by the Affordable Care Act, can be found at: http://www.HealthCare.gov/news/factsheets/2011/07/deliverysystem07272011a.html

Posted on: August 23, 2011