CMS has released a fact sheet describing the “Bundled Payments for Care Improvement” initiative. This program, which was part of the PPACA health reform law, allows hospitals, physicians and other providers to be paid a prospectively-determined rate for a specific episode of care, and then to share any savings that accrue through cooperative efforts to reduce costs. These cost reductions can be decreases in the actual costs incurred by providers (i.e., costs of prosthetic devices purchased by a hospital) or decreases in payments to providers which were avoided by more efficient care delivery (elimination of readmissions, unnecessary referrals, etc.).
Unlike the ACO regulations which have been widely regarded as too restrictive to support participation, the guidelines (which were not written as regulations, but instead included in the “Request for Application) are very broad and allow considerable flexibility to the proposing organizations. These organizations, which may be hospitals, physician groups, PHOs or other similar groups, can participate in any of four different models that will include inpatient-only costs, inpatient plus post-acute costs, post-acute only costs, and an inpatient-only model in which the payments are made to the contracting organization and distributed among the providers. Proposing organizations may define their own episodes based on DRGs, and also the length of the episode.
CMS will provide historical data which the organizations can use to prepare their fixed-price bundled payment bids. Obtaining and closely analyzing this data will be critical to preparing an accurate proposal. Organizations considering participation should review the payments to all involved providers (hospital, physicians, post-acute) for each DRG under consideration to assess the volume and stability of those costs. DRGs that have significant variation in physician payments, or a significant outlier component of hospital payments, may not be good candidates for participation in the demonstration. On the other hand, those DRGs may hold potential for reductions in such variations, which may create opportunities for cost savings. Careful analysis of the data, working with the physicians who control the delivery of care and therefore are primary drivers of cost, is essential to developing proposals for this pilot program. The actual hospital costs of those DRGs, which hopefully are available from the hospitals cost accounting system, should also be considered in developing the pricing proposals.
I coauthored an article on this demonstration in the September 2010 issue of Healthcare Financial Management in which we raised several questions about the specifics of the demonstration, and suggested that an overly-restrictive structure would inhibit participation. I haven’t dug through all of the details yet, but it appears from the Fact Sheet that CMS considered some of those issues and has made this program extremely flexible and attractive to participants.