Peter Wehrwein


Will bundled payments be the way all this aspirational, buzzy talk about value-based care becomes a reality?

Hard to say. There are problems with bundled payments, just as there are with ACOs, patient-centered medical homes, and all the other schemes designed to wean American health care off fee for service and its incentives for ginning up the volume and intensity of health care.

But CMS—in its new role as the most consistently disruptive force in health care—is definitely throwing its considerable influence and dollars behind bundled payments.

“Medicare Doubles Down on Bundled Payments” was the Politico Pulse headline about the bundled payment announcement on Monday.

Starting in July 2017, CMS is proposing to use bundled payments to pay hospitals for the care for acute myocardial infarction (AMI) and coronary artery bypass graft (CABG) patients.

The agency is also proposing to expand bundled payments in orthopedic surgery so that in addition to total hip and knee replacement they will include surgery to repair hip fractures.

Bundled payments for AMI and CABG are a big deal partly because they’re such big ticket items. In its proposed rule for this program, CMS estimates that the annual Medicare price tag for the AMI and CABG “episodes” that will be covered by the new bundled payments at $6.3 billion.

CMS is, though, still in demonstration project mode here. The AMI and CABG bundled payments are scheduled to last five years and will be limited to hospitals in 98 randomly selected metropolitan statistical areas (MSAs), according to the CMS proposal. The agency settled on 98 for statistical reasons. That number should be enough to show a 2% to 3% change in spending on AMI and CABG episodes after a year of experience.

But this could be important: The hospitals in the selected MSAs will be required to participate in the bundle payment program. Required participation is key, according to Peter Orszag and other commentators, because luring hospitals and doctors into voluntary programs leads to, in Orszag’s words, “watered-down incentives” that blunt the effect of bundle payments, so the outcomes are unimpressive.

In the past, one of the shortcomings of bundled payments is that the period that they included was too short, so only part of the care associated with a particular intervention was covered.

In this program, the episode covered by the payment extends 90 days after the AMI or CABG patient is discharged from the hospital and will include all spending covered by Medicare Parts A and B during those 90 days and during the inpatient stay.

Bundled payments may conjure up notions of CMS paying hospitals in lump sums for these AMI and CABG episodes. It’s actually a good deal more complicated than that.

Hospitals and other providers will continue to file claims and be paid on a fee-for-service basis. At the end of the year, the fee-for-service spending will be combined (you might say bundled) and then compared to a target price, arrived at by blending hospital-specific and regional data. If the combined spending is less than the target price, then the hospital will be paid that difference (“savings”). If it is more, then the hospital will have to repay the excess, although that downside risk is phased in.

CMS has also proposed a system for adjusting the target price so that hospitals that do well on quality measures will be paid more.

Illustration by Bryan Brandenburg

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