On August 23, the Centers for Medicare & Medicaid Services announced the “Bundled Payments for Care Improvement Initiative” and published a request for application for interested providers. According to the CMS press release, the new initiative is designed to align payments for services delivered across an episode of care (e.g., heart bypass or hip replacement) by bundling the payment for various components of that episode of care rather than paying separately for each individual service. CMS believes that the bundled payments will incentivize providers to coordinate care, improve the quality of care and save money for Medicare. 

Providers may submit applications to participate in any one or more of the following four different models:

  • Model 1: Retrospective payment for the acute inpatient hospital stay only.
  • Model 2: Retrospective bundled payment for hospitals, physicians, and post-acute providers for an episode of care consisting of an inpatient hospital stay followed by post-acute care.
  • Model 3: Retrospective bundled payment for post-acute care where the bundle does not include the acute inpatient hospital stay.
  • Model 4: Prospectively administered bundled payment for hospitals and physicians for the acute inpatient hospital stay only.

Interested providers must include in their application a definition of the episode of care, the proposed discount offered to Medicare for such episode of care, and a discussion of how care improvement and redesign will improve quality and patient experience of care. Participants in Models 2 and 3 stand to share in savings achieved below a predetermined target price in providing the episode of care, and participants in each Model will bear the risk of repaying to Medicare amounts incurred in excess of the target price.    

In some ways, the bundled payments initiative is similar to the Medicare Shared Savings Program. However, where the Shared Savings Program is designed to operate at the population level for the group of assigned Medicare beneficiaries, the bundled payment initiative is designed to operate at the individual patient level. In addition, where the key demographic of the Shared Savings Program appears to be primary care physicians and hospitals, the bundled payment initiative specifically contemplates participation by entities such as long term care facilities, home health agencies, and even “conveners of participating health care providers.” Whether either program attracts a critical mass of interested participants remains to be seen.  

CMS made it clear that while the instant request for applications for the bundled payment initiative is limited to acute care episodes, CMS views this initiative as but one more step in a broader shift toward bundled payments. Thus, even those providers who are not interested in applying for the present initiative will want to familiarize themselves with it and be prepared for similar payment reforms down the line. Providers interested in applying for the bundled payments initiative must submit a non-binding letter of intent to CMS no later than September 22, 2011 for Model 1 (with a completed application due by October 21, 2011) and November 4, 2011 for Models 2, 3, and 4 (with a completed application due by March 15, 2012).   

For more information about the Bundled Payments for Care Improvement Initiative, and to view the full request for application, visit the Center for Medicare & Medicaid Innovation website.