Are you ready for bundled payments?

Bundled Payments– Part 1 –

Ready or not (and like it or not), the move from the familiar fee-for-service payment model to a new system – in which payments to providers are bundled – is on. Yet another of the many significant changes currently sweeping the healthcare industry, the bundled payment system is designed with the intent to deliver better clinical outcomes and lower overall costs.

In a bundled payment system, providers are reimbursed a predetermined amount, which is set for each specific, pre-defined episode of care. The Centers for Medicare & Medicaid Services (CMS) states that “bundling payment for services that patients receive during a single episode of care, such as heart bypass surgery or a hip replacement, is one way to encourage doctors, hospitals, and other health care providers to work together to better coordinate care for patients, both when they are in the hospital and after they are discharged. Such initiatives can help improve health, improve quality of care, and lower costs.”

Will it work? Some evidence indicates that bundling payments may actually help to control costs. One of the earliest experiments in payment bundling dates all the way back to 1991 and Medicare’s Heart Bypass Center Demonstration. In this noble experiment, four hospitals received single payments for coronary artery bypass graft surgeries; no outlier payments were permitted. Each bundled payment negotiated fell within a range between 10 and 37 percent below prevailing payment levels. Subsequent analysis found that all four of the participating hospitals were able to significantly reduce direct variable costs.

How to make the bundled payments work for your organization

As is the case with any system, your results may vary. The success you have with bundled payments is, to a very significant extent, dependent upon your level of expertise in using them. The American Hospital Association (AHA) has developed a series of eight guidelines to help healthcare providers understand and navigate the bundled payments system. The following is a summary of the ACA’s eight suggested steps:

Step One – Create episodes of care

An episode of care is comprised of the all the various services provided to treat a specific condition. Each episode of care begins with a specific triggering event and must have a clearly defined endpoint.

The CMS defines the following four episode of care models:

 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. Participation will begin no later than January, 2014 and will include 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 will include 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 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.

Model 4: Acute Care Hospital Stay Only

Under Model 4, CMS will make a single, prospectively determined 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 will submit “no-pay” claims to Medicare and will be 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.

There are many details to consider when defining bundles, but among the most important is the potential for overlap. For example, if a patient is admitted for a total knee replacement (TKR) and is then found to require treatment for congestive heart failure (CHF), it is imperative that you bundle correctly in order to optimize reimbursement.


End of Part 1

This concludes Part 1 of Are you ready for bundled payments? Clearly, as with any new system, you’ll encounter many new opportunities, as well as many potential pitfalls. Fortunately, BHM offers the expertise you need to achieve the success you desire. Contact us today to find out how BHM’s proven bundled payment strategies can work for you!