The Centers for Medicare & Medicaid Services (CMS) has traditionally paid health care providers separately for each of the individual services they furnish to beneficiaries for a single illness or course of treatment. This approach to payments rewarded a quantity versus quality of care and could result in fragmented care with minimal coordination across providers and health care settings. Now, CMS and the healthcare industry are working together to focus on improvement of the quality of care through a method dubbed as “Bundled Payments”.

Although the concept of “Bundled Payments” has been around since the late 1990s, particularly in the dialysis industry in which I worked for many years, it has not been explored in other areas until recently. For example, in 2011 CMS began compensating dialysis providers under a new bundled payment method that included in a single “per treatment” payment compensation for previously separately billable laboratory services and treatment-related drugs. This bundled payment system for reimbursement of dialysis services has been expanded in the past few years and now includes positive adjustments to reimbursement amounts based on the acuity of the end stage renal disease patient and negative adjustments if certain minimum quality indicators are not met by the dialysis provider.

In 2013, CMS announced the Bundled Payments for Care Improvement (BPCI) Initiative to improve care and to reduce costs. BPCI is comprised of four broadly defined models of care that link payments for many of the services beneficiaries receive during an episode of care. Under the initiative, hospitals and other healthcare providers enter into payment arrangements that include financial and performance accountability for episodes of care.

With the expanded use of bundled payment and other new methodologies to pay for medical services, what should hospitals and other healthcare providers know about bundled payments and what should they consider if they are thinking of participating in such an arrangement?

1. What is included in the payment? – What items will Medicare and/or another payor include in the bundle?  Will they include prescription drug treatments or laboratory services used during treatment? It is important to know what services or treatments are included so that you can determine your profitability for bundled services accordingly.

2. What is excluded from the payment? – Just as important is knowing what will not be included in your bundled payment from Medicare and/or another payer. Find out what will not be included and what is the financial risk your organization is willing to be responsible for if a service/item is not included in your bundled payment.  Can you bill for the excluded item or not?  Must you incur the cost of that excluded item as an expense of delivery of the services provided under the bundled payment arrangement?

3. How will you get paid? – With any payment arrangement, it is important to understand how much Medicare and/or another payer will pay for your services.  Are there any specific regulatory or payer imposed requirements that must be met to be paid?  What are the terms of payment and when can you expect to be paid? Again, this will help you plan your billing cycles with third-party vendors and manage your organization’s cash flow throughout the year. You should also confirm that your electronic billing program can generate invoices that meet the payer requirements.

BPCI is expected to have the first results for Model 1 (acute care) by the end of 2016 and we should have more information on how CMS will want to implement the BPCI initiative going forward. The other interesting thing to note is that if CMS is satisfied with the results from this initiative, the methodologies of bundled payments could be easily adapted to further expand (i.e., to “Super-Bundle”) the payment for treatments (such as for hospitalizations) as took place years ago for dialysis services.