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CMS announces 500 organizations will participate in bundled payment initiative

On Thursday, the Centers for Medicare & Medicaid Services (CMS) announced it had selected more than 500 healthcare organizations to participate in its Bundled Payment for Care Improvement initiative, a program to test how bundling payments for episodes of care can improve care coordination and lower overall Medicare expenditures.

The program includes four models of payment bundling differentiated by the type of care provided and the setting where it is provided. The goal is to encourage groups of providers, including physicians, hospitals, post-acute facilities and others, to work in concert in order to improve care for specific episodes.

"The objective of this initiative is to improve the quality of health care delivery for Medicare beneficiaries, while reducing program expenditures, by aligning the financial incentives of all providers," said Marilyn Tavenner, acting administrator for CMS, in a press release.

In order to participate in the program, providers have agreed to give CMS a discount on the expected individual payments expected under Medicare fee-for-service for all the different services for each episode of care. The provider organizations will also work together to reduce hospital readmissions, duplicative care and complications, which should in turn reduce costs via improved care.

According to information about the initiative on the CMS website, the program will test four different models of payment bundling:

Model 1, "Retrospective Acute Care Hospital Stay Only" includes an episode of care focused on the acute care inpatient hospitalization. Model 1 participants agree to provide a standard discount to Medicare from the usual Part A hospital inpatient payments.

Model 2, "Retrospective Acute Care Hospital Stay Plus Post-Acute Care," and Model 3, "Retrospective Post-Acute Care Only" involve a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care.

Model 4, "Acute Care Hospital Stay Only" involves a prospective bundled payment arrangement where a lump sum payment is made to a provider for the entire episode of care.

The announcement of participating organizations marked the start of Phase 1 for Models 2, 3 and 4, which will run until July 2013. Phase 1 participants are generally expected to become participants in Phase 2, in which approved participants opt to take on financial risk for episodes of care starting in July 2013, pending contract finalization and completion of CMS' standard program integrity reviews.

Model 1, of which there were 32 participants named, will start around April 2013. CMS will also announce a second chance to participate in Model 1 sometime in the next few weeks. The second round is expected to start in early 2014.

Medical groups are encouraged by the steps CMS is taking with this bundled payment program and even hope to encourage an expansion to other providers.

"We are pleased the initiative provides flexibility and a range of models for the selected participants," said Jeremy A. Lazarus, MD, president of the American Medical Association, in a prepared statement. "We believe this initiative, in conjunction with other new models for delivering care to Medicare patients, presents an opportunity to improve the quality of care and reduce costs.

"It is important that physicians in a variety of practice types have opportunities to participate in bundled payment program pilots … We encourage CMS to offer additional models as the four existing models all involve an inpatient hospital stay."

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