Redesigning Healthcare Delivery Through Bundled Payments for Care: Q&A With Center for Medicare and Medicaid Innovation's Valinda Rutledge

On Aug. 22, CMS released a request for application for the Bundled Payments for Care Improvement Initiative. The initiative, created by the Patient Protection and Affordable Care Act, incents physicians and hospitals to coordinate care, which is intended to improve quality and reduce healthcare costs associated with treating Medicare beneficiaries. For providers that are accepted, CMS will pay for an entire episode of a patient care, rather than pay for each service separately, and physicians and healthcare facilities will be able to share in any savings created by better coordinating care.

Since the details of the initiative have been released, many within the healthcare industry have applauded its fairly straight-forward requirements and flexibility; providers can apply one or more of four different bundled care models, which include both retrospective and prospective payment as well as both acute-care only, post-acute only and combined designs. As opposed to the pushback CMS received from some providers after the release of the agency's proposed rule for its Medicare Shared Savings Program, the response from providers for bundled payments seems almost glowingly positive. Valinda Rutledge, director of the Patient Care Models Group at CMS' Center for Medicare and Medicaid Innovation, discusses the rationale behind the initiative and answers key questions on how the models will work.

Q: CMS will allow providers who apply to participate in the bundled payment initiative to select from among four models. Why was it important to offer different models to providers?

Valinda Rutledge: One unique aspect of the Innovation Center is that it has the authority to identify, test, rapidly evaluate and hopefully scale models that improve the quality of care while lowering (or not increasing) the overall system cost, without having to go back to Congress. This means that we are looking for models that work in communities that are diverse in resources, population and geography. We want to make sure that what works for a large integrated health care system in Boston can also work for a small rural Oklahoma community hospital. And if there are differences that get to the same result of better care, better health and lower costs, then we need to acknowledge those differences and give providers the flexibility to improve care by the means available to them, where they are.

We want to provide a rough framework for hospitals and other providers to be able to structure their proposals. We went around the country and in listening sessions, conferences and in submissions to our "idea inbox" on our website, we heard broad consensus that innovative stakeholders most wanted us to lay out a broad framework for how they could operationalize their ideas and for us to provide enough oversight and support to protect beneficiary choice and the quality of their care, every step of the way.

Our ultimate goal for this particular program is to help support enough providers around the country in their concurrent goals of achieving three-part aim outcomes, that we can reach a critical mass of innovative healthcare leaders so that care improvement becomes the new norm. In essence, we want to remove the barriers that have historically hampered care improvement, so that every healthcare provider in this country has the means and impetus to improve the quality of care for every patient that walks through their doors.

Q: How will CMS decide which applicants are accepted into the various models; will considerations be made beyond discounts offered? Will participation be limited to a defined number of providers?

In the past, it took several years to get demonstrations up and rolling. Through the Innovation Center, we have a way to test ideas, evaluate them and, if the model has been effective, potentially go to the Secretary of HHS and scale the idea [in a shorter timeframe]. If you think of [how we'll select participants] in that context, we're not going to limit it to a certain numbers of providers in certain markets. We first need to ensure they are great quality providers and they have protections in place for beneficiaries. [Beyond that, a key selection consideration will be] to make sure we have diversity among beneficiary participants. If we scale this — if this is something the way of the future could be based upon, [we must pilot a diverse sample].

Q: Which of the four models do you anticipate will be the most popular? Why?

It's hard to say, but I envision model 1 and model 2 having the largest response. I say this because in model 1, it's the most straightforward. Because the model is around all DRGs, the applicant doesn't have to define the episode. Model 1 is focused on within the walls of a hospital, and it doesn't impact physician reimbursement [from CMS] at all. There has been some confusion around this model, but it only affects part A payments. However, we recognize that physicians have to be in the middle of redesigning care, so under model 1, hospitals can engage in gainsharing with physicians on savings for Medicare patients. The benefit of model 1 is that the barriers to care integration and improvement will be removed so that providers can focus on care redesign that has a total patient population effect, not just Medicare patients.

In model 2, hospitals, physician groups and post-acute facilities have the chance to partner with each other in ways that can get at a huge area of need for improvement: transitions between different care settings. We know that there is a huge opportunity for improvement there and that by working together, post-acute and acute-care providers can make a really positive impact on patient experience and save hundreds of millions to billions in costs through better care coordination and streamlining of care delivery.

Model 3 is interesting because it doesn't have anything to do with the hospital, it's about post-acute providers and physicians. This model was developed because post-acute providers desired a way to work with physicians to redesign care in post-acute facilities.

Q: Under the bundled payment initiative's precursor, the Acute Care Episodes project, a contracting organization was given a bundled payment from CMS to distribute to providers. The new program eliminates this requirement for models 1-3, which means hospitals no longer need the infrastructure to distribute payments as previously required. What was the rational behind the change?

With retrospective payment, the advantage is everybody — physicians, hospitals and post-acute providers — is paid their traditional fee-for-service and then there is retrospective reconciliation. Under prospective payment, CMS gives the discounted amount to one awardee and they distribute it. [Having both payment options] allows the most flexibility to providers as possible. In one community, physicians may not feel comfortable with a hospital awardee getting the payment. In another, the system might determine they can save a lot in terms of administrative costs if they accept prospective payments, so they'll choose the lump sum payments. We want providers to think about how they can work together in their communities to redesign care and want to give them as much flexibility as possible to find the best model to meet their community's needs and fit with their traditions of working together.

Q: The new program also increases the maximum threshold for gainsharing payments to physicians to 50 percent of the fee-for-service equivalent, compared to the 25 percent maximum in the ACE project. What led to the decision to raise the limit?

At the core of every decision was how to we improve the quality of care for beneficiaries and ensure their freedom of choice and safety. We believed that interim lessons learned from the ACE project showed that increasing the maximum threshold for gainsharing could have a beneficial effect on the ability for physician buy-in to care improvement strategies. Also, the nature of our initiative is such that we are open to any proposal that can demonstrate why a higher gainsharing threshold may be beneficial for the success of an organization's care improvement strategy. Certainly, we will have to weigh on an application-by-application basis, the benefits and possible drawbacks of allowing for high percentages of a physician's income to be derived from gainsharing arrangements. However, keeping in mind that our first duty is to protect the quality of care and freedom of choice for Medicare beneficiaries, we wanted to be open to hearing how this policy might be used to enhance the patient experience while creating greater physician support within participating organizations.

Q: The bundled payment program is not classified as a shared savings program, meaning hospitals participating in this program can also participate in Medicare Shared Savings Program as ACOs. Do you anticipate a significant number of hospitals will participate in both?

It's difficult to say. As a former hospital CEO [at CaroMont Health in Gastonia, N.C.], I think I would approach it from the perspective of what I was ready to do. The beauty of the Bundled Payments for Care Improvement Initiative is that it may be a first step for those interested in becoming an accountable care organization. For others, who are committed to becoming an ACO, the bundled payments initiative may be an important tool to start creating physician support for care improvement strategies. 

Q: If you could give providers interested in applying for the program one piece of advice, what would it be?

Providers should consider participating in this program, not only for the direct benefits of the program, but in the context of the changing healthcare environment. This is a strategic investment to develop the processes and competencies, local and national relationships with innovative providers, and culture to succeed in a future which will increasingly demand value over volume.

I hope that providers see this as an opportunity to either continue partnering or begin a partnership with CMS towards care redesign to achieve three part aim outcomes. The CMS Innovation Center is a great way for providers to engage the process of care improvement, and I hope the bundled payment initiative becomes the catalyst for a continued relationship towards our shared goal of making our healthcare system the best in the world.

Q: The request for applications includes application deadlines, but it doesn't include go-live dates for the pilots. When does CMS expect the bundled care payment models to be fully implemented?

We'd really like to get model 1 up and running in the first quarter of 2012. Models 2-3 will be later on that year. It depends on the number of applicants we get and how much lead time they need to get up and running before implementation.

Related Articles on Bundled Payments:

7 Points to Know About the Bundled Payment Initiative
CMS Extends Deadlines for Model 1 of Bundled Payment Initiative
HHS Announces New Bundled Payment Initiative

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