Medicare Bundled Payment Initiative Stretches from Coast to Coast

Will Pilot Quell Doubts About Applicability in Primary Care?

April 16, 2013 04:55 pm Sheri Porter

Bundled payment has reached the federal government's test-tube stage of development.

[$100 bill bundles stacked on top of each other]

At its core, this oft-discussed payment model casts off the conventional method of paying health care professionals individually and directly for the care they provide in favor of offering one lump sum payment to be divided among all who participate in a defined episode of care.

In fact, the Patient Protection and Affordable Care Act of 2010 directed CMS to test a variety of payment methods, including bundled payments. As such, CMS' Center for Medicare and Medicaid Innovation was given oversight of the new Bundled Payments for Care Improvement Initiative(, which officially launched on Jan. 31 with the announcement that more than 100 health care organizations scattered across the country had been selected to participate.

According to information posted by CMS, participants in the project are expected to enter into payment arrangements that include financial and performance accountability for episodes of care. The goal, according to CMS, is to produce "higher quality, more coordinated care at a lower cost to Medicare."

story highlights

  • CMS recently launched a four-pronged test program dubbed the Medicare Bundled Payment Initiative.
  • Participating health care organizations will enter into payment arrangements that include financial and performance accountability for episodes of care.
  • Although bundled payment works well for episodes of care with a discreet starting and ending point, it may be less useful in primary care situations where patients are treated for multiple chronic conditions.

Participating organizations will select from among 48 "episodes of care," including invasive procedures, such as coronary artery bypass graft surgery and major joint replacement, as well as a list of acute and chronic conditions often diagnosed and handled by family physicians, such as

  • urinary tract infections,
  • chronic obstructive pulmonary disease (COPD),
  • diabetes,
  • simple pneumonia and respiratory infections, and
  • nutritional and metabolic disorders.

Exploring Four Models

Four different models of bundled payment -- each with its own set of particulars -- will be explored during the course of the five-year initiative. HHS has the authority to expand the program if doing so will reduce spending and improve -- or not reduce -- the quality of patient care.

Model number four comes closest to the true definition of bundled payment in that CMS will make a single predetermined "prospective" bundled payment to a participating hospital. That single payment will cover all medical services provided by the hospital, physicians and other health care professionals during a patient's hospital stay, as well as for related readmissions for as many as 30 days after hospital discharge.

Physicians and other health care professionals involved in the patient's care will be paid by the hospital out of the bundled payment.

Models two (acute care hospital stay plus post-acute care) and three (post-acute care only) involve a retrospective payment where actual expenditures are compared to a preset target price for an episode of care. Models two, three and four already are underway.

Model one will test retrospective payment for acute-care hospital stays only and is set to commence in the second quarter of 2013. In this model, Medicare will continue to pay physicians separately for their services according to the 2013 fee schedule, and, if savings are achieved, physicians and hospitals may have an opportunity to share in those savings.

Bundled Payment in Primary Care

Regardless of learnings from the four-pronged initiative, the question of bundled payment's applicability to primary care, and especially to family physicians in private practice, likely will remain.

Bruce Bagley, M.D., interim president and CEO of AAFP's subsidiary TransforMED, said in an interview with AAFP News Now that bundled payment works well for an episode of care with a discreet starting and ending point.

"If a patient falls down and fractures a hip, any costs incurred that are related to the fracture are included in the bundle," said Bagley. That would include the emergency room visit, hospitalization, imaging fees, lab fees, physician fees, and even rehabilitation, physical therapy and post-acute care. "Everything associated with that diagnosis gets put into that bundle over a period of time, and the total cost is pretty apparent," said Bagley.

Unfortunately, bundled payment doesn't always organize itself so conveniently in primary care.

"I would question how useful the model is when a patient has multiple chronic illnesses," said Bagley, a family physician who spent 28 years in private practice in Albany, N.Y., and who knows all too well the kinds of health problems that drive patients to a family physician's office.

For example, said Bagley, consider a patient who suffers from diabetes, depression and COPD. "Bundled payment is really not very useful for the care of that patient," said Bagley. "It's hard to know which costs go with which of the three conditions, and there's no definite beginning or ending to the care, so it's an arbitrary yearlong bundle."

Bagley pointed out that in the case of an integrated health care system or an accountable care organization (ACO), the success of any bundled payment system would depend on transparency in distributing any shared savings accrued through increased cooperation and efficiencies in the handling of individual episodes of care.

It's important that primary care physicians be on equal footing with other health care professionals on the health care team when the time comes to deliver on payment, said Bagley. "If the hospital or the ACO saves money but doesn't distribute the money in a way that is proportionate to the value contributed, then the organization won't see any change in the behavior of the health care professionals."

Bottom line, he noted, family physicians need to be prepared to ask the appropriate questions when bundled care is on the table for discussion. "If family physicians are part of an integrated system that's looking at bundled payments, they need to understand what their contribution to the cost reduction might be." For example, a family physician probably wouldn't have much ability to affect the efficiency of care for a patient admitted to the hospital for heart surgery.

However, if an admission were made due to a chronic illness, a family physician could ostensibly provide good care management that might result in fewer specialty consultations. "Physicians need to ask how they will be rewarded for that contribution to the efficiency of the bundle of care," said Bagley.

The AAFP officially supports the development of new Medicare payment methodologies that would assure fair payment for primary care services but not necessarily bundled payment.