CMS launches bundled payment program

500 providers test episode-of-care payments
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A new bundled payment initiative will change how 500 providers get paid from Medicare, the Centers for Medicare & Medicaid Services announced Thursday afternoon.

Traditional Medicare rules pay hospitals and physicians on a single illness or treatment, thought to contribute to fragmented care. Now, the Bundled Payments for Care Improvement program, under the Affordable Care Act, allows CMS to test four models of payments based on episodes of care rather than single line items.

CMS hopes the bundled payments will encourage hospitals, physicians, post-acute facilities and other providers to work together across settings and specialties to improve outcomes, such as reducing readmissions and duplicative care, while lowering costs.

Model 1 focuses on acute care inpatient hospitalization. Although Medicare will continue to pay hospitals under the Inpatient Prospective Payment System, hospitals will receive reduced amounts based on the discounted percentages on MS-DRGs in the provider agreement, CMS explained. The change places some financial risk on the provider if expenditures from both Part A and B increase beyond the risk threshold during the inpatient stay and month after discharge, compared to historical expenditures. Among Model 1 testers are Hackensack (N.J.) UMC Mountainside Hospital and Robert Wood Johnson University Hospital in Brunswick, N.J.

In Model 2 and 3, Medicare payments won't change. After the care, the aggregate Medicare expenditures are compared to a target price. If that costs are less that the target, Medicare pays the provider the difference. But if the costs come in above the target, the provider pays Medicare the difference. Model 2 providers, which focus payments on acute hospital stays and post-acute care, include the Cleveland Clinic (Ohio) Health System and Billings (Mont.) Clinic.  Model 3 only focuses on post-acute care services, such as skilled nursing facilities, inpatient rehabilitation, long-term care hospitals and home health agencies.

Model 4 solely focuses on acute hospital stays and includes Sutter Medical Center Sacramento and Scripps hospitals as participants, among others. In this model, Medicare issues a single bundled payment to the hospital where the patient stayed. The hospital is then responsible for doling out payment to other providers who also cared for the patient. However, the hospital participating in the program--whether it is the admitting hospital or not--is financially responsible for the Medicare costs for readmissions. And if the admitting hospital is not one of the 500 organizations in the program, the participating hospital will not see Medicare payment for that episode of care.

"The objective of this initiative is to improve the quality of healthcare delivery for Medicare beneficiaries, while reducing program expenditures, by aligning the financial incentives of all providers," Acting Administrator Marilyn Tavenner said in today's statement.

For more information:
- see the announcement and information on models
- here's the CMS FAQ (.pdf)

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