On Feb. 14, 2014, the Centers for Medicare & Medicaid Services (CMS) issued a notice in the Federal Register announcing an open period for additional organizations to be considered for participation in Models 2, 3 and 4 of its Bundled Payments for Care Improvement (BPCI) initiative. The BPCI initiative was developed by the CMS Innovation Center, which was created by the Patient Protection and Affordable Care Act to test innovative payment and service delivery models that have the potential to reduce Medicare, Medicaid or Children’s Health Insurance Program (CHIP) expenditures while preserving or enhancing the quality of care for beneficiaries. Under the BPCI initiative, organizations enter into payment arrangements intended to promote higher-quality, lower-cost coordinated care across an episode of care.The BPCI initiative is composed of four broadly defined models of care that bundle payments for multiple services that beneficiaries typically receive during an episode of care.

  • Retrospective Acute Care Hospital Stay Only. In Model 1, an episode of care is defined as the inpatient stay in the acute care hospital. Medicare will pay hospitals, on a retrospective basis, a discounted amount based on the Medicare Part A payment rates established under the Inpatient Prospective Payment System used in the original Medicare program. Medicare will continue to pay physicians separately for their services under the Medicare Physician Fee Schedule. Under certain circumstances, hospitals and physicians are permitted to share savings arising from the providers’ care redesign efforts.
  • Retrospective Acute Care Hospital Stay Plus Post-Acute Care. In Model 2, an episode of care includes the inpatient stay in an acute care hospital and all related services during an episode of care that ends either 30, 60 or 90 days after hospital discharge. Participants can select up to 48 different clinical condition episodes, and actual expenditures are reconciled on a retrospective basis against a target price for an episode of care.
  • Retrospective Post-Acute Care Only. In Model 3, an episode of care will be triggered by an acute care hospital stay and will begin at initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. The post-acute care services included in the episode must begin within 30 days of discharge from the inpatient stay and will end either a minimum of 30, 60 or 90 days after the initiation of the episode. Participants can select up to 48 different clinical condition episodes. Like in Model 2, CMS reconciles actual expenditures against a target price for an episode of care.
  • In both Models 2 and 3, the bundle includes physicians’ services, care by post-acute providers, related readmissions and other related Medicare Part B services included in the episode definition such as clinical laboratory services; durable medical equipment, prosthetics, orthotics and supplies; and Part B drugs. A target price is set based on historical fee-for-service payments for the participant’s Medicare beneficiaries in the episode including a discount. Payments are made at the usual fee-for-service payment rates, after which the aggregate Medicare payment for the episode will be reconciled against the target price. Any reduction in expenditures beyond the discount reflected in the target price will be paid to the participant and may be shared among their provider partners. Any expenditure that is above the target price will be repaid to Medicare by the participant.
  • Prospective Acute Care Hospital Stay Only. Under Model 4, CMS will make a single, prospectively determined lump-sum bundled payment to the hospital that would encompass all services furnished during the inpatient stay by the hospital, physicians and other practitioners. Physicians and other practitioners submit “no-pay” claims to Medicare and are paid by the hospital out of the bundled payment. Related readmissions for 30 days after hospital discharge will be included in the bundled payment amount. Participants can select up to 48 different clinical condition episodes.

Over the course of the three-year initiative, CMS will work with participating organizations to assess whether the models being tested result in improved patient care and lower costs to Medicare.On Jan. 31, 2013, CMS announced the original set of healthcare organizations selected to participate in the BPCI initiative in response to a Request for Application. The first set of participants in Model 1 began in April 2013 and additional participants began in January 2014. The first set of participants in Models 2, 3 and 4 were announced in January 2013. Please contact one of the authors below for more information about the BPCI initiative or the process for submitting an application to be considered during the Winter 2014 open period for participation.