Bundled Payments under the Affordable Care Act Continue to Gain Influence

The Center for Medicare and Medicaid Services (CMS) recently announced that it will add roughly 4,100 providers to the 2,400 existing providers testing the possible use of Medicare bundled payment contracts. Providers must apply to be candidates, and this group of now roughly 6,500 providers, including both hospitals and medical groups, will participate in analyzing Medicare spending data to assess possible bundled payment options. This all comes as part of the Bundled Payments for Care Improvement initiative (BPCI), just one of the Affordable Care Act’s many attempts to incentivize health care providers to be more cost efficient.

Bundled payment programs refer to the concept of grouping together the multiple services associated with a certain health “episode”, condition or procedure – encompassing everything from an early breast cancer diagnosis, to a joint replacement or pacemaker implant. In the current fee for service system, each service associated with a condition is charged separately. In a bundled payment program, all services relating to a certain episode are grouped together from the initial tests and consultations, to the surgeries, drugs and post-op rehabilitation. Some have referred to it as the difference between paying for a meal a la carte versus a prix fixe menu.

Proponents of the bundled payment initiative are hopeful that this new approach to health care can lead not only to increased accountability for health care spending (and therefore greater cost-consciousness from providers), but also more transparency for health care consumers, whether employers, health insurers, or the patients themselves. Early market studies are showing a hearty enthusiasm from consumers, who are eager to better understand the costs of their care.

In the BPCI initiative, providers are generally required to reduce Medicare costs by 2%-3.5% in order to earn the program’s rewards. The idea is that by setting procedures up as a bundle of services, they can budget resources and costs of services better, and can hit designated targets.

There are four general “models” of care being tested in the program:

• Model 1 focuses on the acute care inpatient hospitalization. Awardees agree to provide a standard discount to Medicare from the usual Part A inpatient hospital payments. The first set of participants in Model 1 began in April 2013, with additional participants in January 2014.
• Models 2 and 3 involve retrospective pricing where a target price is set at the beginning, but actual expenditures are later reconciled against the target price after the episode of care. This model reduces risk to the provider, allowing health systems to ease into bundled payments.
• Model 4 involves prospective pricing, where a total price is paid to a provider up front, incentivizing providers to work together to reduce costs in order to realize a profit. Another advantage of this model is that, if implemented, it will allow health systems to publish a “menu” of health care products or procedures, giving consumers a more active role in selecting what meets their health care needs and budget, knowing what procedures will cost them in total up front.

The organizations participating in these test models will report back to CMS to determine whether the different models resulted in improved patient care and lower costs to Medicare. Participating providers can test any of the four models during this three-year initiative, and thus far interest is only growing among providers of health care and consumers alike.