Fact Sheets

Bundled Payments for Care Improvement Initiative

Updated September 30, 2013

Overview

On January 31, 2013, the Centers for Medicare & Medicaid Services (CMS) announced the health care organizations selected to participate in the Bundled Payments for Care Improvement initiative, an innovative new payment model. Under the Bundled Payments for Care Improvement initiative, organizations will enter into payment arrangements that include financial and performance accountability for episodes of care. These models may lead to higher quality, more coordinated care at a lower cost to Medicare.

Background

Bundled Payments

Traditionally, Medicare makes separate payments to providers for each of the individual services they furnish to beneficiaries for a single illness or course of treatment. This approach can result in fragmented care with minimal coordination across providers and health care settings. Payment rewards the quantity of services offered by providers rather than the quality of care furnished. Research has shown that bundled payments can align incentives for providers – hospitals, post-acute care providers, physicians, and other practitioners– allowing them to work closely together across all specialties and settings.

The Innovation Center

The Bundled Payments for Care Improvement initiative was developed by the Center for Medicare and Medicaid Innovation (Innovation Center). The Innovation Center was created by the 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.

Initiative Design

The Bundled Payments initiative is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. Model 1 includes an episode of care focused on the acute care inpatient hospitalization. Awardees agree to provide a standard discount to Medicare from the usual Part A hospital inpatient payments.  The first set of participants in Model 1 began in April 2013.

Models 2 and 3 involve a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care. Model 4 involves a prospective bundled payment arrangement, where a lump sum payment is made to a provider for the entire episode of care. Over the course of the three-year initiative, CMS is working with participating organizations to assess whether the models being tested result in improved patient care and lower costs to Medicare.

Plans for all models include care redesign and enhancements, such as reengineered care pathways using evidence-based medicine, standardized operating protocols, improved care transitions, and care coordination. All may also include proposals for gainsharing among provider partners.

Retrospective Payment Bundling

Model 1: Retrospective Acute Care Hospital Stay Only.
Under Model 1, the episode of care is defined as the inpatient stay in the acute care hospital. Medicare will pay the hospital a discounted amount based on the 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 will be permitted to share gains arising from the providers’ care redesign efforts. The first set of participants began in April 2013. The next set of participants will begin Model 1 on January 1, 2014.  Participation includes most Medicare fee-for-service discharges for the participating hospitals.

Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care.
In Model 2, the episode of care includes the inpatient stay in the acute care hospital and all related services during the episode. The episode will end either 30, 60, or 90 days after hospital discharge. Participants can select up to 48 different clinical condition episodes.

Model 3: Retrospective Post-Acute Care Only.
For Model 3, the episode of care will be triggered by an acute care hospital stay and begins 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 30, 60, or 90 days after the initiation of the episode. Participants can select up to 48 different clinical condition episodes.

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 Payment Bundling

Model 4: Acute Care Hospital Stay Only.

Under Model 4, CMS makes a single, prospectively determined bundled payment to the hospital that encompasses all services furnished during the inpatient stay by the hospital, physicians, and other practitioners. Physicians and other practitioners will be paid by the hospital out of the bundled payment. All services furnished during related readmissions for 30 days after hospital discharge are also included in the bundled payment amount. Participants can select up to 48 different clinical condition episodes.

Models 2-4 - 2 Phases of Implementation

The Bundled Payments for Care Improvement initiative includes two phases for Models 2, 3, and 4.  Phase 1, also referred to as the “preparation” period, is the initial period of the initiative during which CMS and participants prepare for implementation and assumption of financial risk. Those participants in Phase 1 of Models 2, 3, and 4 that are approved by CMS and intend to assume financial risk for episodes may enter into a Bundled Payments for Care Improvement Model agreement with CMS as Awardees and begin Phase 2, also referred to as the “risk-bearing” period.

On January 31, 2013, the first set of Bundled Payments for Care Improvement Phase 1 participants were announced.  Phase 2 will begin either on October 1, 2013 or January 1, 2014 for Awardees that have entered into Model agreements with CMS, at which point Awardees will begin the risk-bearing phase for some or all of their episodes.  The complete transition of all episodes for all episode initiators to Phase 2 will be completed by October 2014.  During the transition period, Phase 2 Awardees may transition episodes and/or episode initiators that have remained in Phase 1 to Phase 2 on a quarterly basis.  By November 2013, current Awardees and Phase 1 participants may also identify additional episodes and/or episode initiators to join Phase 1.

Phase 1 will end in Fall 2014 for all participants, and all episodes that Awardees have not transitioned to Phase 2 will be withdrawn from the Bundled Payments for Care Improvement initiative.

More Information

For more information on the Bundled Payments for Care Improvement initiative, including a list of participants, please go to: http://innovation.cms.gov/initiatives/Bundled-Payments.