On July 31, the Centers for Medicare and Medicaid Services (CMS) announced that 4,122 new providers have expressed interest in the Medicare Bundled Payments for Care Improvement initiative, in addition to the 2,412 providers who were already exploring the possibility of joining the program. CMS also released an updated Fact Sheet on the initiative, which was developed by CMS’s Innovation Center under the Affordable Care Act (ACA).

Unlike the traditional approach of paying hospitals and physicians separately for each service performed for a Medicare beneficiary, bundled payments are intended to encourage providers to better coordinate care and eliminate duplicative or unnecessary services or tests. There are four different models of care under the initiative, three of which use a retrospective arrangement in which actual expenditures are reconciled against a target price set by CMS for an episode of care. If the total cost of the care is below the target price, all of the providers may share in the savings; if the total cost exceeds the target, some portion of the payments will have to be refunded to Medicare.

In the fourth model, a lump-sum payment is paid upfront to a hospital for an entire episode of care, including all services furnished during the inpatient stay by the hospital, physicians, and other practitioners. The hospital then pays physicians and other practitioners out of the bundled payment. Services furnished during readmissions are also included in the lump sum.

The bundled payments program, which began in January 2013, is similar in many respects to the “accountable care” initiatives that were also created under the ACA. Accountable Care Organizations (ACOs) and the Medicare Shared Savings Program are discussed here. Although more than 6,500 providers have now applied to become candidates for the bundled payments program, only 243 providers have actually entered into contracts with CMS thus far.