In its most recent effort to hasten Medicare’s transformation from a fee-for-service payment model to a value-based payment model, the Centers for Medicare & Medicaid Services (CMS) proposed on July 25 a new mandatory bundled payment model for cardiac care services and an extension of the existing bundled payment model for hip replacements to include other surgeries for hip and femur fractures.

If the proposed rule is finalized, the new cardiac bundled payment model would launch on July 1, 2017, in 98 randomly selected metropolitan statistical areas, and the expansion of the Comprehensive Care Joint Replacement model would occur in the 67 MSAs already participating in the model.

Under the proposal, Medicare would pay hospitals a fixed amount, or target price, per episode of care for beneficiaries admitted for a heart attack, bypass surgery or surgical hip/femur fracture treatment. CMS would set target prices for different episodes of care on the basis of historical costs for Medicare fee-for-service beneficiaries, which would then be adjusted according to the complexity of the particular episode of care. The central tenet of the proposed models lies in the shifting of accountability to the admitting hospital for the cost and quality of care provided to the patient during the treatment episode, encompassing the inpatient stay and 90 days after discharge.

At the end of a performance year, actual spending for the episode, including aggregate expenditures for Medicare Parts A and B, would be compared to the fixed per-episode target price calculated for the responsible hospital. Hospitals that collaborate with physicians and other providers to provide care at a cost lower than the target price would receive the difference between the target price and actual costs, while hospitals with costs exceeding the target price would be required to repay Medicare. Furthermore, hospitals that deliver higher-quality care would be eligible to be paid a higher amount than those with lower-quality performance.

The proposal includes a phased implementation mechanism whereby gains would be capped at 5% during the first two performance periods, increase to 10% in the third performance period and plateau at 20% in 2020 and 2021, the last two years of the program. With respect to downside risk, participants would incur no repayment penalty during the first performance period and the first quarter of the second year. For the balance of the second year, downside risk would be capped at 5%, increasing to 10% in 2019 and 20% in 2020 and 2021. The first performance period would run from July 1, 2017, to December 31, 2017, while the second through fifth performance periods would correspond to calendar years 2018 through 2021.

Hospital groups have expressed concerns over the rapid pace that CMS is setting for the implementation of these transformative bundled payment models. American Hospital Association Executive Vice President Tom Nickels observed in a statement that the proposed cardiac care model “is the third mandatory demonstration project from CMS in a little over a year.” Nickels added, “CMS is putting the success of these critical programs at risk. Hospitals are under a tremendous burden to help ensure these complex models will work for patients.”

The proposed rule was published in the August 2, 2016, Federal Register. The comment period closes on October 3, 2016.