On August 23, the Center for Medicare and Medicaid Innovation (Innovation Center) released a Request for Applications (RFA) for the Bundled Payments for Care Improvement Initiative (the Initiative).1 The Initiative is likely a thematic precursor to the National Pilot Program on Payment Bundling (National Pilot Program), which the Centers for Medicare & Medicaid Services (CMS) will be required to implement under section 3023 of the Affordable Care Act (ACA).2 The National Pilot Program is intended to integrate care “during an episode of care provided around a hospitalization in order to improve the coordination, quality, and efficiency of health care services under this title.” Although the Innovation Center is not conceding a direct link between the National Pilot Program and the Initiative,3 it acknowledges that the Initiative’s results may inform future CMS and Department of Health and Human Services (HHS) activities.

The Initiative complements two other recent initiatives, CMS’s Medicare Shared Savings Program (MSSP) for accountable care organizations (ACOs)4 and the Innovation Center’s Pioneer ACO Program,5 which in many ways is an advanced version of the MSSP. Taken together, the Initiative, MSSP, and Pioneer ACO Program provide multiple opportunities for health care providers to experiment with alternative payment and integrated care delivery models that may be expanded if they generate positive quality and cost-containment results.

The Bundled Payment Reimbursement Models Permitted under the Initiative

Payments under the Initiative will cover all of the services a beneficiary receives throughout an episode of care. The Initiative will test four payment models. Depending on the model chosen, an episode of care may include services received during a hospital stay (payable under Medicare Part A) and/or care received after a hospital stay (payable under Medicare Part B). In a stakeholder call6 held on the release date of the RFA, Innovation Center Director Dr. Rick Gilfillan stated that the Innovation Center hopes to implement the most promising submissions across the country.7

Under Models 1-3 of the Initiative, the provider would be paid discounted Part A and/or B rates for an episode of care as defined in its application and would only receive payments after the end of each episode. So, under Model 1, which is based on CMS’s Gainsharing Demonstration, applicants may propose a bundled payment for discounted services that a patient receives when in the hospital. Under Model 2, applicants may propose a bundled payment for services received during a hospital stay as well as for related services delivered within a defined number of days after discharge. In Model 3, payments would only cover services delivered within a specified number of days after a patient’s hospital discharge for a related condition. In Model 4, applicants would receive payments in advance of (rather than after) a hospital stay, and the services a beneficiary receives during the stay would be deducted from the advance payment — an approach used in the ongoing Acute Care Episode (ACE) Demonstration.8

Providers may participate individually or as “convenors” who represent a group of provider entities (e.g., a hospital and physicians groups). Additionally, convenors may either fully undertake the financial risk if they participate as “awardees” who receive the bundled payments, or merely facilitate the model among the participating providers without taking on the financial risk.

Under all of the models, the applicants may retain all of the savings they achieve in excess of the discounted rates. Of note, this approach contrasts to the MSSP and Pioneer ACO Program, under which providers share the savings with Medicare. Providers may participate in one or more of the models within the Initiative, and they may even participate in multiple Innovation Center programs simultaneously — as long as they do not recover duplicate savings for the same episodes of care. But to make sure that providers do not deliver inadequate care or quality while pursuing cost savings, the Innovation Center plans to monitor quality metrics as well as expenditures throughout the Initiative.

Comparison to the Pioneer ACO Program and Medicare Shared Savings Program

During the stakeholder call, the Innovation Center representatives made clear that eligible health care providers may be able to test bundled payment systems through the Initiative while participating in either the Pioneer ACO Program or the MSSP. The Innovation Center will determine an Initiative applicant’s ability to participate in the Initiative, and the Pioneer ACO Program or the MSSP on a case-by-case basis. This approach is feasible because the three programs test different ideas on how to reform the Medicare payment and care delivery structure.

Click here to view a chart providing a summary of the main differences between the three programs.

Rewarding Value over Volume of Care through Supervised Gainsharing

Additionally, in contrast to the MSSP and Pioneer ACO Program, the Initiative takes an additional step towards making gainsharing arrangements a more profitable, legal option for providers who want to use coordinated care models to improve care for Medicare beneficiaries. This approach is possible because the Initiative focuses on encouraging coordinated care models through payment schemes rather than through a new legal entity.

Gainsharing arrangements involve one or more health care providers setting cost-savings goals and then sharing any savings achieved beyond those goals or as compared to existing costs. The concern often expressed, in particular by the Office of Inspector General for the Department of Health and Human Services (OIG), is that the cost-savings goals may tend to provide physicians with inappropriate incentives to maximize the savings with the results that they may withhold needed care. Payment models that directly or indirectly encourage such limitations on care, depending on how they are structured, could implicate the so-called Gainsharing Civil Monetary Penalties Law10 and other fraud and abuse statutes. Health care providers thus have been wary of bundled payment arrangements in the past even though they could potentially decrease unnecessary services and Medicare waste.

Because the primary goal of the Initiative is to reward the value rather than volume of care that a patient receives, the Innovation Center is encouraging applicants to include detailed descriptions of gainsharing arrangements in their proposals that could otherwise implicate the fraud and abuse laws so that CMS can consider them for waivers under its newly granted statutory waiver authority. Such waivers would only apply to arrangements submitted as part of the Initiative. It is unclear how the Innovation Center will coordinate its review with the OIG.

Additional Concerns

Near the end of the stakeholder call, Dr. Nancy Nielsen, Senior Advisor to the Innovation Center, stated that the Initiative is a great opportunity for physicians to be leaders and partners on an equal playing field with hospitals, and to break down the barriers between Part A and B reimbursement that may have prevented collaboration between hospitals and other health care providers in the past. Stakeholders on the call nevertheless expressed concern that hospitals, as the Initiative’s most essential participants, will use it to strengthen existing arrangements rather than to establish new provider relationships. Dr. Gilfillan reiterated that the Initiative, like other Innovation Center offerings, prohibits participants from interfering with a beneficiary’s choice of provider, which means all services a beneficiary receives in an episode of care will be deducted from the bundled payments, regardless of the source.

Nevertheless, the internal payment mechanisms – or funds flow – that hospitals use to pay physicians and other post-acute providers under the Initiative will be an important driver in the incentives given to them to be full partners in the process.

Deadlines and Timelines

The deadlines for submitting non-binding letters of intent and subsequent applications are:

  • October 6, 2011 for Model 1 (Final applications must be received on or before November 18, 2011.), and
  • November 4, 2011 for Models 2-4 (Final applications must be received on or before March 15, 2012.).

The Innovation Center anticipates that the Model 1 initiative will be up and running in January 2012, and the initiative for Models 2-4 will begin in Spring 2012.