AAOS Now

Published 10/1/2011
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Madeleine Lovette

CMS seeks providers to test bundled-payment options

The U.S. Centers for Medicare & Medicaid Services (CMS) is inviting healthcare providers to apply to help test and develop four different models of bundling payments. The initiative, announced on August 23, 2011, is a preliminary component of a much larger requirement of CMS to establish a national, voluntary pilot program on bundling by 2013, as mandated by the Affordable Care Act (ACA). The results of this initiative are expected to assist CMS in establishing the national program in 2013.

The four preliminary models are designed to offer flexibility in selecting the conditions to be covered by bundled payment and in determining how payments will be allocated among participating providers. Each model includes a 3-year performance period, with the possibility of an additional 2-year extension. Organizations can apply for more than one model. In addition, participants in other special payment programs (such as the Acute Care Episode demonstration project and the Medicare Shared Savings Program) are eligible to participate in this initiative.

Retrospective bundling
The first three models use a retrospective bundled payment arrangement. CMS would establish a target payment amount for a defined episode of care. Under the assumption that the ability to share gains will result in reduced costs, applicants would propose a target price lower than the target payment.

Participants would be paid for their services under the original Medicare fee-for-service (FFS) system, but at the discounted payment amount. At the end of the episode, the total payments would be compared to the target price. If the cost of the episode of care comes in below the target price, participants will be able to share in those savings. However, if the cost comes in above the target price, then Medicare is owed the difference.

Inpatient care only
Model 1 applies to inpatient care only. Model 1 applicants will propose a discounted price that will apply to Part A payments for inpatient hospital services for all Medicare diagnosis-related groups (MS-DRGs). Medicare will continue to pay acute care hospitals under the Inpatient Prospective Payment System (IPPS) but at the discounted rate. Part B payments to physicians will not change. After the episode, hospitals and physicians will be able to share any gains resulting from better care coordination, up to the established target price.

Inpatient/postdischarge
Model 2 applies to both the inpatient stay and to postdischarge services. Participants will propose a predetermined discounted price covering all services included in the episode of care. Under this model, participants will be able to choose from the following definitions of episode of care:

  • The episode is initiated with an acute inpatient hospital stay and ends between 30 and 89 days postdischarge
  • The episode is initiated with an acute inpatient hospital stay and ends 90 days or more postdischarge.

Under this model, physicians will still receive their regular Part B payments. At the end of the episode, Medicare will reconcile the actual cost with the target cost of the episode. If there are any savings, then the gainsharing works the same way as Model 1. If the fee-for-service payments exceed the bundled payment amount, Medicare will reclaim any money exceeding the target amount from the providers.

Postacute services only
Under Model 3, the episode of care begins at the initiation of postacute care services at a skilled nursing facility, inpatient rehabilitation facility, long-term care hospital, or home health agency within 30 days of discharge from an acute care hospital and continue for a minimum of 30 days. Participants will propose a predetermined discounted price for all services included in the episode.

As under Model 2, physicians will still receive their Part B payments, and at the end of the episode, Medicare will reconcile the actual cost with the target cost of the episode. If there are any savings, the gainsharing works the same way as Models 1 and 2. If the fee-for-service payments exceed the bundled payment amount, Medicare will reclaim any money exceeding the target amount from the providers.

Prospective payment
The fourth model involves prospective payment bundling and an acute inpatient hospital stay. In this model, hospitals would receive a predetermined payment from CMS for all the services furnished during an episode. The hospital would use that fixed amount to pay physicians and other providers. Model 4 differs from the other models in that it involves a single, upfront payment covering expenses under both Part A and Part B. Thus, hospitals and physicians must negotiate who will be paid what before the hospital receives its payment.

A shared risk
All of these models give doctors and hospitals a stake in improving care and reducing costs. Unless physicians actively participate, hospitals will not be able to reduce costs below the per-episode bundled rate and will not make a profit. And, hospitals cannot expect physicians to participate willingly if the gainsharing arrangement does not provide sufficient payments to physicians.

Providers applying to participate in a pilot project must propose a clinical condition to be covered by a bundled payment, define the time period for the episode and the services involved, and draft a plan for quality assurance and improvement. Prospective applicants are required to submit nonbinding letters of intent to be eligible for enrollment. The American Association of Orthopaedic Surgeons (AAOS) encourages members to submit letters of intent, regardless of whether they ultimately enroll in a bundling model or not. The letters of intent are completely nonbinding and do not obligate members to submit completed applications later.

Letters of intent for Model 1 were due on Oct. 6, 2011. Applicants for Model 1 must submit their completed applications by Nov. 18, 2011. Applicants for the other models must submit a nonbinding letter of intent by Nov. 4, 2011, and a completed application by March 15, 2012. Read AAOS Headline News Now and Advocacy Now for more information and upcoming deadlines.

An incentive to improve
“CMS recognizes that many barriers and few incentives exist to promote collaboration and coordination of care across providers and care delivery sites. This bundled payment initiative offers physicians the opportunity to improve quality and reduce the cost of care by facilitating more highly coordinated, cost-efficient care,” said Kevin J. Bozic, MD, MBA, chair of the AAOS Health Care Systems Committee.

“By aligning incentives for value creation across care providers, the CMS bundled payment initiative offers physicians, hospitals, and patients an opportunity to share in those cost savings,” added Dr. Bozic. “Physician leadership will be the key to success in enhancing value through this initiative, because physicians are in the best position to identify opportunities to improve quality and reduce the cost of care.”

The AAOS has developed a position statement on bundled payments, as well as two related primers—Hospital Employment of Physicians, which touches on bundled payment models, and Accountable Care Organizations (ACOs), a type of bundled payment model.

Staff in the AAOS office of government relations can answer questions and provide assistance and resources. Email Richard Martin, JD, AAOS manager of federal regulatory affairs, at rmartin@aaos.org, or Matthew Twetten, AAOS senior manager of regulatory, quality, and medical affairs, at twetten@aaos.org

Madeleine Lovette is the communications specialist in the AAOS office of government relations. She can be reached at lovette@aaos.org

Additional Links:

Read the AAOS Position Statement on Bundled Payments

Read the AAOS Accountable Care Organizations Primer (PDF)

Read the AAOS Hospital Employment of Physicians Primer (PDF)