Physicians and hospitals now have the chance to test out bundled payments on a range of conditions under a new Medicare initiative.

In August, officials at the Centers for Medicare and Medicaid Services released a request for applications (RFA) inviting physicians, hospitals, and other health care providers to participate in the Bundled Payments for Care Improvement initiative. The program, which was mandated under the Affordable Care Act, offers a variety of options for bundling payments for a hospital stay, for postdischarge services, or for both the hospital stay and the postdischarge care.

The move toward bundled payments is a major shift in how the government pays for medical care. Instead of paying hospitals, physicians, and other providers separately, this initiative would combine the payment over an episode of care for a specific condition. The aim of the program is to incentivize clinicians to work together and provide better continuity of care, resulting in better quality and lower costs.

“Today, Medicare pays for care the wrong way,” Health and Human Services Secretary Kathleen Sebelius said during a teleconference to announce the bundling program. “Payments are based on the quantity of care, the amount of services delivered, not the quality of that care. And that leaves us too often with a system that actually can punish the providers that are most successful at getting and keeping their patients healthy.”

The new bundling program offers four ways that health care providers can receive a bundled payment, three of which provide payment retrospectively, and one that offers a prospective payment. For example, under some of the retrospective payment models, CMS and the providers would agree on a target payment amount for the episode of care and providers would be paid under the original Medicare fee-for-service system, but at a negotiated discount of 2%–3% or greater. At the end of the care episode, the total payment would be compared with the target price and providers would be able to share in the savings, according to CMS.

The prospective payment model would work differently. Under that option, CMS would make a single bundled payment to the hospital to cover all services provided during the inpatient stay by the hospital, physicians, and other providers. That payment would offer at least a 3% discount to Medicare. Under this option, physicians and other providers would submit “no pay” claims to Medicare and the hospital would pay them out of the single bundled payment.

In addition to the options of prospective or retrospective payment, providers could choose how long the episode of care will be and what conditions they want to bundle payment for, and what services would be included in the payment. CMS officials said they wanted to make the program flexible so that a range of hospitals, physicians, and other providers could participate.

Organizations interested in applying for Model 1 had to submit a letter of intent by Sept. 22. Nov. 4 is the deadline for those interested in Models 2, 3, and 4. More information on the program and how to apply is available at www.innovations.cms.gov/areas-of-focus/patient-care-models/bundled-payments-for-care-improvement.html

Dr. Richard Gilfillan, the acting director of the CMS Innovation Center, which is overseeing the bundling initiative, said he expects that hundreds of organizations will apply. CMS will consider a number of factors in choosing participants for the program including the best proposals for care improvement, the number of patients involved, and the conditions addressed, and the price discounts offered, he said.

The program is a unique opportunity for hospitals to redesign their systems to promote better care coordination, Dr. Gilfillan said, and have that effort supported through Medicare payments.

The idea is to eliminate the traditional barriers between physicians and other providers – both inpatient and outpatient – all of whom may be involved in the care of a single condition, said Dr. Nancy Nielson, senior adviser to the CMS Innovation Center and past president of the American Medical Association. “I do believe that both physicians and hospitals will find this [to be] an opportunity that's flexible enough to give them the opportunity to begin to learn how to get paid for care differently,” she said.

The AMA praised CMS for making the program flexible. Dr. Cecil B. Wilson, AMA immediate past president, said the organization will urge federal officials to encourage applications for physician-led bundling projects.

“For this to be successful, and for physicians to participate actively, then they need to be a part of that process rather than just some larger corporation or larger hospital system or health plan that's organizing these,” he said.

“We think those are important as well, but we also think it's important that physicians be a part of that leadership.”

Medicare to Begin Testing Bundled Payments