Fact Sheets

Bundled Payments for Care Improvement Initiative Fact Sheet

Bundled Payments for Care Improvement Initiative
Fact Sheet
Updated January 30, 2014

OVERVIEW

On January 31, 2013, the Centers for Medicare & Medicaid Services (CMS) announced the health care organizations selected to participate in the Bundled Payments for Care Improvement initiative, which includes four innovative new payment models. Under the Bundled Payments for Care Improvement initiative, organizations will enter into payment arrangements that include financial and performance accountability for episodes of care. These models can lead to higher quality, more coordinated care at a lower cost to Medicare.

BACKGROUND

Bundled Payments
Traditionally, Medicare makes separate payments to providers for each service they perform for beneficiaries during a single illness or course of treatment. This approach can result in fragmented care with minimal coordination across providers and health care settings. It also rewards the quantity of services offered by providers rather than the quality of care furnished. Research has shown that bundled payments can align incentives for providers – hospitals, post-acute care providers, physicians, and other practitioners – allowing them to work closely together across all specialties and settings.

The Innovation Center
The Bundled Payments for Care Improvement initiative was developed by the Center for Medicare and Medicaid Innovation (Innovation Center). The Innovation Center was created by the Affordable Care Act to test innovative payment and service delivery models that have the potential to reduce Medicare, Medicaid, or Children’s Health Insurance Program (CHIP) expenditures while preserving or enhancing the quality of care for beneficiaries.

INITIATIVE DESIGN

The Bundled Payments for Care Improvement initiative is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. Model 1 focuses on the acute care inpatient hospitalization. Awardees agree to provide a standard discount to Medicare from the usual Part A hospital inpatient payments.  The first set of participants in Model 1 began in April 2013, and additional participants began in January 2014. Models 2 and 3 involve a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care. Model 4 involves a prospective bundled payment arrangement, where a lump sum payment is made to a provider for the entire episode of care. The first set of participants in Models 2, 3, and 4 were announced in January 2013. Over the course of the three-year initiative, CMS is working with participating organizations to assess whether the models being tested result in improved patient care and lower costs to Medicare.

 

Plans for all models include care redesign and enhancements, such as reengineered care pathways using evidence-based medicine, standardized operating protocols, improved care transitions, and care coordination. All may also include proposals for gainsharing among provider partners.

Retrospective Payment Bundling

Model 1: Retrospective Acute Care Hospital Stay Only.
Under Model 1, the episode of care is defined as the inpatient stay in the acute care hospital. Medicare will pay the hospital a discounted amount based on the payment rates established under the Inpatient Prospective Payment System used in the original Medicare program. Medicare will continue to pay physicians separately for their services under the Medicare Physician Fee Schedule. Under certain circumstances, hospitals and physicians will be permitted to share savings arising from the providers’ care redesign efforts. The first set of participants began in April 2013. An additional set of participants began on January 1, 2014. Participation includes all Medicare fee-for-service discharges for the participating hospitals.

Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care.
In Model 2, the episode of care includes the inpatient stay in the acute care hospital and all related services during the episode. The episode will end either 30, 60, or 90 days after hospital discharge. Participants can select up to 48 different clinical episodes.

Model 3: Retrospective Post-Acute Care Only.
For Model 3, the episode of care will be triggered by an acute care hospital stay and begins at initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. The post-acute care services included in the episode must begin within 30 days of discharge from the inpatient stay and will end either 30, 60, or 90 days after the initiation of the episode. Participants can select up to 48 different clinical episodes.

In both Models 2 and 3, the bundle includes physicians’ services, care by post-acute providers, related readmissions, and other related Medicare Part B services included in the episode definition such as clinical laboratory services; durable medical equipment, prosthetics, orthotics and supplies; and Part B drugs. A target price is set based on historical fee-for-service payments for the participant’s Medicare beneficiaries in the episode including a discount. Payments are made at the usual fee-for-service payment rates, after which the aggregate Medicare payment for the episode will be reconciled against the target price. Any reduction in expenditures beyond the discount reflected in the target price will be paid to the participant and may be shared among their provider partners. Any expenditure that is above the target price will be repaid to Medicare by the participant.

Prospective Payment Bundling

Model 4: Acute Care Hospital Stay Only.
Under Model 4, CMS makes a single, prospectively determined bundled payment to the hospital that encompasses all services furnished during the inpatient stay by the hospital, physicians, and other practitioners. Physicians and other practitioners will be paid by the hospital out of the bundled payment. All services furnished during related readmissions for 30 days after hospital discharge are also included in the bundled payment amount. Participants can select up to 48 different clinical episodes.

MODELS 2-4 – TWO PHASES OF IMPLEMENTATION

The Bundled Payments for Care Improvement initiative includes two phases for Models 2, 3, and 4.  Phase 1 is the “preparation” period in which CMS shares data with participants and participants prepare for possible implementation and assumption of financial risk. Those participants in Phase 1 of Models 2, 3, and 4 that are approved by CMS and intend to assume financial risk for episodes may enter into a Bundled Payments for Care Improvement Model Agreement with CMS as Awardees and begin Phase 2.  Phase 2, also referred to as the “risk-bearing” phase, is the step where the participants that are selected by CMS to progress to Phase 2 become accountable for the quality and cost of the episodes.  

On January 31, 2013, the first set of Bundled Payments for Care Improvement Phase 1 participants were announced.  Those Awardees entered into Model agreements with CMS that, at the Awardee’s choice, became effective on either October 1, 2013 or January 1, 2014, at which point Awardees began the risk-bearing phase for some or all of their episodes.  Phase 2 Awardees may transition episodes and/or Episode Initiators that have remained in Phase 1 to Phase 2 on a quarterly basis.  

MORE INFORMATION

For more information on the Bundled Payments for Care Improvement initiative, including a list of participants, please go to: http://innovation.cms.gov/initiatives/Bundled-Payments.  

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