Bundled CMS Payments Lower Costs, Helps Doctors and Hospitals Coordinate Care


August 24, 2011

August 24, 2011 — The U.S. Department of Health and Human Services (HHS) announced a new initiative to improve care for patients while in the hospital and after discharge. Doctors, hospitals, and other healthcare providers can now apply for a new program known as the Bundled Payments for Care Improvement initiative (Bundled Payments initiative).

Part of the Affordable Care Act (ACA), it will align payments for services delivered across an episode of care, such as heart bypass or hip replacement, rather than paying for services separately. Bundled payments will give doctors and hospitals new incentives to coordinate care, improve the quality of care and save money for Medicare.

In Medicare currently, hospitals, physicians and other clinicians who provide care for beneficiaries bill and are paid separately for their services. This Centers for Medicare and Medicaid Services (CMS) initiative will bundle care for a package of services received to treat a specific medical condition during a single hospital stay and/or recovery. This is known as an episode of care. 

By bundling payment across providers for multiple services, providers will have greater incentive to coordinate and ensure continuity of care across settings, resulting in better care for patients. This will reduce unnecessary duplication of services and preventable medical errors, while helping patients heal without harm and lowering costs.

The Bundled Payments initiative is being launched by the new Center for Medicare and Medicaid Innovation (Innovation Center). It was created by the ACA to carry out the task of finding new and better ways to provide and pay for healthcare to a growing population of Medicare and Medicaid beneficiaries.

Released Tuesday, the Innovation Center’s Request for Applications (RFA) outlines four broad approaches to bundled payments. Providers will have flexibility to determine which episodes of care and which services will be bundled together. By giving providers a choice, it will be easier for providers of different sizes and readiness to participate in this initiative.

“This Bundled Payment initiative responds to the overwhelming calls from the hospital and physician communities for a flexible approach to patient care improvement,” said CMS Administrator Donald Berwick, M.D.  “All around the country, many of the leading healthcare institutions have already implemented these kinds of projects and seen positive results.”

The Bundled Payments initiative is based on research and previous demonstration projects that suggest this approach has tremendous potential. For example, a Medicare heart bypass surgery bundled payment demonstration saved the program $42.3 million, or roughly 10 percent of expected costs, and saved patients $7.9 million in coinsurance while improving care and lowering hospital mortality. 

“From a patient perspective, bundled payments make sense.  You want your doctors to collaborate more closely with your physical therapist, your pharmacist and your family caregivers.  But that sort of common sense practice is hard to achieve without a payment system that supports coordination over fragmentation and fosters the kinds of relationships we expect our healthcare providers to have,” said Berwick.

Proven Results with Bundled Payments

Both Medicare and private healthcare providers have shown that bundling payments improves care for patients, and leads to better health, better care and lower costs.

- During the five-year Heart Bypass Center Demonstration (started in 1986) Medicare saved $42.5 million – or 10 percent – on coronary artery bypass graft (CABG) surgery at participating hospitals in Atlanta, Columbus, Ann Arbor (Michigan), and Boston, largely through improved hospital processes and a reduced need for intensive care. Medicare patients saved $7.9 million in co-insurance payments.

- The fixed price for CABG under Geisinger’s ProvenCare reduced costs and improved patient care. This showed hospital costs dropped 5 percent, average length of stay fell by 0.5 days, and the 30-day re-admission rate fell 44 percent over 18 months for Pennsylvania hospitals in Geisinger’s network.

Organizations interested in applying to the Bundled Payments initiative must submit a letter of intent (LOI) no later than Sept. 22, 2011 for Model 1 and Nov. 4, 2011 for Models 2, 3, and 4.

For more information: www.innovations.cms.gov