CMS Rolls Out New Medicare Bundled Payment Initiative

More than 500 organizations will begin participating in the Bundled Payments for Care Improvement initiative, the Centers for Medicare and Medicaid Services (CMS) announced Jan. 31.

Under the initiative authorized by the health care reform law, CMS will test how bundling payments for episodes of care can result in providers working together to furnish more coordinated, quality care for fee-for-service beneficiaries while lowering the costs to Medicare.

In the Jan. 31 statement, CMS announced the selection of 32 awardees in the initiative’s Model 1, who will begin testing bundled payments for acute-care hospital stays as early as April 2013. In the coming weeks, CMS will announce a second opportunity for providers to participate in Model 1, with an anticipated start date of early 2014.

The initiative includes four models of bundling payments, varying by the types of health care providers involved (hospitals, physicians, post-acute facilities, and other providers as applicable) and the services included in the bundle. The participating provider organizations will agree to provide CMS a discount from expected payments for the episode of care, and then the provider partners will work together to reduce readmissions, duplicative care, and disease complications.

The Jan. 31 announcement also marks the start of Phase 1 of Models 2, 3, and 4. In Phase 1 (January-July 2013), over 100 participants partnering with over 400 provider organizations will receive new data from CMS on care patterns and engage in shared learning in how to improve care. Phase 1 participants are generally expected to become participants in Phase 2, in which they opt to take on financial risk for episodes of care starting in July 2013, pending contract finalization and completion of CMS’s standard program integrity reviews.

To see the list of awardees for Model 1 and participants for Phase 1 of Models 2, 3, and 4 go to

Bundled Payment Models

  • Retrospective Acute-Care Hospital Stay Only (Model 1): Episode of care is defined as the inpatient stay in the hospital. Medicare will pay the hospital a discounted amount based on the payment rates established under the Part A diagnosis-related groups. Medicare will continue to pay physicians separately for their services under the Part B fee schedule. Under certain circumstances, hospitals and physicians will be permitted to share gains arising from the providers’ care redesign efforts.
  • Retrospective Acute-Care Hospital Stay Plus Post-Acute Care (Model 2): Episode of care includes the inpatient stay, and all related services during that time. It will end either 30, 60, or 90 days after discharge. Participants can select up to 48 different clinical condition episodes.
  • Retrospective Post-Acute-Care Only (Model 3): Episode of care is triggered by an acute-care hospital stay, and the provision of post-acute-care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital, or home health agency will begin within 30 days of discharge. It will end 30, 60, or 90 days after initiation of the episode. Participants can select up to 48 different clinical condition episodes.

In both Models 2 and 3, the bundle will include physicians’ services, care by post-acute providers, related readmissions, and other related 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 will be set based on historical fee-for-service payments for the participant’s Medicare beneficiaries in the episode and will include a discount. Payments will be made at the usual fee-for-service 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 its provider partners. Any expenditures above the target price will be repaid to Medicare.

  • Acute-Care Hospital Stay Only (Model 4): CMS will make a single, prospectively determined bundled payment to the hospital that would cover all services furnished during the inpatient stay. Physicians and other practitioners will submit “no-pay” claims to Medicare and will be paid by the hospital out of the bundled payment. Related readmissions for 30 days after hospital discharge will be included in the bundled payment amount. Participants can select up to 48 different clinical condition episodes.

Forging Ahead With Other Payment Model Demonstrations
In addition to rolling out the bundled payment initiative, the CMS Center for Medicare and Medicaid Innovation is fielding other payment model demonstrations authorized by the health care reform law.

As of Feb. 3, CMS will begin accepting letters of intent to participate in an end-stage renal disease (ESRD) seamless care initiative. Interested organizations must include a dialysis facility, a nephrologist, and one other Medicare provider or supplier that serves at least 200 beneficiaries. Those that succeed in offering high-quality care that lowers the total Parts A and B cost of care for ESRD beneficiaries will have the opportunity to share in Medicare savings. ESRD beneficiaries constitute 1.3 percent of the Medicare population and account for an estimated 7.5 percent of Medicare spending, totaling over $20 billion in 2010. These high costs are often the result of underlying disease complications and multiple comorbidities, which often lead to high rates of hospital admission and readmissions, as well as a mortality rate that is much higher than the general Medicare population.

On Jan. 10, CMS approved a major expansion of the Medicare Shared Savings Program to 106 new accountable care organizations (ACOs). This brings the total number of ACOs established since 2012 to more than 250, serving about 4 million Medicare fee-for-service beneficiaries (NIR 13, 2/Jan. 24, p. 2). ACOs are legal entities formed by physicians and health care providers to furnish coordinated, quality care and disease-management programs to beneficiaries (5,000 at a minimum). ACOs share the risk and rewards for keeping patients healthy. Beneficiaries in ACOs can choose health care providers within or outside their ACO.

While Medicare continues to pay individual health care providers and suppliers for specific items and services as it currently does under Part A and Part B reimbursement, CMS sets a benchmark on per capita spending for each ACO against which its performance is measured to assess whether it qualifies to receive shared savings or to be held accountable for losses.

In June 2012 CMS launched the Independence at Home demonstration project involving 15 independent practices and three consortia. It is testing the use of home-based primary care teams to improve health outcomes, forestall the need for care in institutional settings, and lower Medicare expenditures for Medicare beneficiaries with multiple chronic conditions (serving at least 200 eligibles). The teams are led by physicians or nurse practitioners, and members include physician assistants, pharmacists, social workers, and other staff.

The project will award incentive payments to participants that meet designated quality measures and reduce Medicare costs. To qualify for an incentive payment, the practice’s expenditures for participating beneficiaries must be lower than the calculated target expenditure, which represents the expected Medicare fee-for-service spending on participating beneficiaries in the absence of the demonstration.

For more on the portfolio of payment model demonstrations under way or being planned, go to .  


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