8 Things to Know About Medicare's Bundled Payment Pilot

The Patient Protection and Affordable Care Act includes a provision to begin a national pilot on payment bundling, which is essentially an expansion of CMS's ongoing Acute Care Episodes Demonstration project. The pilot is scheduled to launch by Jan. 2013. Although specific regulations surrounding the pilot have yet to be released, here are eight considerations for hospitals and physicians should consider as they determine their involvement in bundled payment initiatives.  

1. The pilot will expand the ACE demonstration in a number of ways.
The pilot project is expected to expand both the types of conditions as well as the length of time covered by bundled payments. While the current ACE demonstration project covers only acute-care services, the bundled pilot will include pre- and post- acute services — spanning three days before and 30 days after — an acute-care episode. The legislation calls for the HHS Secretary to select eight "conditions" to be included in the pilot. The conditions will likely include conditions beyond what is covered by the ACE demonstration, which covers certain acute-care episodes related to cardiac and orthopedic surgical services only.

Hospitals that plan to submit a bid for the pilot should begin to explore how to offer competitive but appropriate pricing that cover costs for care 30 days after discharge. Michael Zucker, FACHE, senior vice president and chief development officer for Vanguard Health Systems' Baptist Health System in San Antonio, which is one of only two sites in the ACE Demonstration that offers bundled pricing for both cardiac and orthopedic procedures, says positing a system to accept bundles for this type of care is challenging even for Baptist, which has a good deal of experience in bundled pricing. "There is a lot of variability when you start to look at care beyond an inpatient stay," he says. "At 30 days post discharge, you are looking at working with a whole other group of providers. It's an entirely new layer of complexity."

2. Expect the pilot to include chronic conditions. Although the regulations governing the pilot have not yet been released, expect chronic conditions to be included as covered conditions, says Jonathan W. Pearce, a director with DGA Partners, a hospital consulting firm. The PPACA instructs the Secretary to take into consideration that the conditions selected include a mix of chronic and acute conditions as well as medical and surgical conditions.

3. Because it's a "pilot" rather than a "demonstration," expect the project to be ongoing.
The bundled payment project being referred to as a "pilot" in the PPACA rather than a "demonstration" suggests that the project will be ongoing, according to Mr. Pearce. While no one can be certain whether the language was deliberate, Mr. Pearce cites a 2008 MedPAC report stating that a pilot doesn't need enabling legislation to continue. This distinction was made in order to avoid healthcare providers investing in infrastructure to participate in projects that would later be shut down, says Mr. Pearce.

4. No single type of provider designated to lead bundled projects. The legislation does not indicate whether hospitals, physicians or other providers should lead individual bundled payment projects, but instead outlines which type of providers must be included. The legislation specifically requires the following providers are involved to submit application for the pilot: a hospital, a physician group, a skilled nursing facility and a home health agency. However, the expected financial structure of the pilot makes it likely that hospitals will take the lead role.

For Baptist Health System, leading the charge to participate in the ACE project was attractive because it served as a mechanism for the health system to more closely align with its physicians. Because the pilot permitted shared savings, the physicians could be financially incentivized for providing more efficient, higher quality care.

5. It's unclear whether participation will require accepting bundled payment for all covered conditions.
It is unclear at this time whether participating provider groups would be required to accept bundled payment from CMS for all covered conditions to participate in the pilot, says Mr. Pearce. He says that an "all or nothing" participation requirement could be challenging for hospitals because it would require gathering consensus from physicians in a number of specialties, "What if your cardiologists are onboard [to accept bundled payments], but your rheumatologists are not?" he asks. "Are you out of luck?" An all-or-nothing requirement would likely reduce the number of providers able to develop structures to participate in the pilot. "It's not so much an issue of 'consensus' as it is 'active participation' in the patient management and cost reduction efforts that are critical to success under bundled payments," says Mr. Pearce.

6. Financial incentives have yet to be determined. The legislation gives the HHS Secretary the power to determine the bundled payment methodology, and these have yet not been released. Mr. Pearce predicts that as with the ACE demonstration project providers will bid to participate, offering a discount of expected fee-for-service costs for a care episode or care episodes. He also believes that the providers participating in the project will be able to share in a certain percent of cost savings created. Under the ACE, demonstration project, that additional payment was capped at 25 percent on top of fee-for-service Part B payments for physicians. There's no precedent for other (i.e., post-acute) providers. While the legislation does not specify any shared savings, it is unlikely the project would be viable if it didn't offer this opportunity, says Mr. Pearce.  

Mr. Zucker reports the 25 percent incentive is a strong driver for the physicians to assist the hospital in lowering the cost and improving the quality of care at the health system. "Even though we faced some resistance from physicians at first, once the first few physician champions started receiving gain share distribution checks, word spread quickly," he says. "We had a tremendous amount of interest after that." Through the program, Baptist Health System has saved an estimated $2.2 million dollars while maintaining quality scores in the 96th to 98th percentile.

7. Relations with physicians, post-acute services will be key to success.
Even though specific regulations have not been released, it is clear from the current legislation that a key to success under this bundled payment pilot will require close relationships with physicians, as physicians drive costs and their active engagement in efficiency is key to success under bundled payments. Additionally, hospitals will need to create similar relationships with skilled nursing and home health entities. Hospitals may consider working to better integrate with them as they wait for the regulations to be released, says Mr. Pearce.

8. Involvement won't likely exclude involvement in Medicare's ACO program. Mr. Pearce doesn't believe any language in the legislation would bar hospitals from participating in both the bundled payment pilot and the Medicare Shared Savings, or ACO, program.








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