Medicare and Bundling with Hospitals

The goal of the Bundled Payments for Care Improvement (BPCI) initiative is to determine if paying lump sums for episodes of care will lower healthcare costs without detrimental effects to care.

CMS Administrator Marilyn Tavenner says that the initiative aims to “improve the quality of health care delivery for Medicare beneficiaries, while reducing program expenditures, by aligning the financial incentives of all providers.”

About Bundled Payments for Care Improvement

The Centers for Medicare & Medicaid Services (CMS) created BPCI in January 2012. The initiative describes four broadly defined and innovative models of care. These models establish a bundled payment system that allows for multiple services during an episode of care.

The four models of care are:

• Model 1: Retrospective Acute Care Hospital Stay Only
• Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care
• Model 3: Retrospective Post-Acute Care Only
• Model 4: Acute Care Hospital Stay Only

Under BPCI, hospitals enter into payment arrangements that include performance and financial accountability for episodes of care. The creators of BPCI hope the initiative will lead to higher quality and more coordinated care, and present a lower cost to Medicare.

Funded by the Affordable Care Act, BPCI should help Medicare transition from a fee-for-service payment structure towards a single, bundled payment that covers the entire episode of acute care in a hospital and appropriate post-acute care. Results from the BPCI initiative will not be available for several years, but the influx of early data can provide critical insight into the effects of bundling.

The Effectiveness of Medicare and Bundling with Hospitals

CMS published an evaluation of the initiative’s first year and concluded that the BPCI appeared to have affected provider performance, especially in length of stay and claims-based quality measures. They found that most participants and episodes fell under Model 2, which focuses on acute hospital stays followed by post-acute care, during the first two quarters of the initiative. The most notable change was that readmissions fell 2.5 percent more for BPCI participants than for others.

In a March 2015 study, researchers looked at some of the organizations already participating in BPCI, then reviewed the ways in which these institutions are focusing their efforts. The researchers noted that most of the hospitals are large, nonprofit, teaching hospitals in the Northeast. There were no significant differences between participating and nonparticipating hospitals when it came to episode-based spending. Larger variations in overall episode-based spending occurred in post-acute care; the researchers interjected that this might be an opportunity to align incentives across providers. The limited number of selected clinical conditions and the high degree of integration between hospitals enrolled in BPCI and post-acute care providers may limit bundled payment systems.

Researchers and administrators will gather more information about the effectiveness of Bundled Payments for Care Improvement to learn if BPCI will meet its initiative aims.

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