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Federal Officials Approve Applications for Bundled Payment Initiative

By Rebecca Adams, CQ HealthBeat Associate Editor

January 31, 2013 -- More than 500 health care organizations will participate in the Department of Health and Human Services' bundled payments initiative, the agency announced last week. This effort will test whether paying groups of providers a lump sum for a patient's treatment will lower costs without undermining the quality of care.

Under the three-year project, groups of providers such as hospitals, home health agencies and physicians will collaborate on patients' care for a particular condition. Because the providers will share payments, Centers for Medicare and Medicaid Services officials hope they will coordinate closely on treatment. The goal is to avoid unnecessary tests or treatments and ensure that providers' care makes sense holistically.

Many of the organizations that were selected are located in California, Florida, the Northeastern part of the United States, and near the Great Lakes region. The participants are listed in an online, searchable database.

"This is huge and it's historic," Centers for Medicare and Medicaid Services' acting Principal Deputy Administrator Jonathan Blum said on a phone call with reporters. He said agency officials are excited about the project because it will teach them how to build better Medicare payment policies that could be expanded in the future.

Although Medicare and private insurers have experimented with bundling payment pilot projects in the past, none have come close to the scale of the current effort, Blum said.

The providers could choose to apply under four main arrangements. CMS officials approved projects using all four models. Work could start as early as April under one of the options.

When the initiative was first developed, there was only one model available. That would have required providers to give CMS a standard discount for acute care inpatient hospital treatment. Then CMS announced three other options. After the additional choices were unveiled, CMS officials said they considered delaying the implementation of that first option because there wasn't as much interest in it.

But after organizations applied, it became clear that all the models had some support.

As part of the announcement, CMS approved 32 hospitals for the standard discount model—far fewer than for each of the others. The New Jersey Hospital Association gathered together most of the hospitals that will participate under this option, which will allow hospitals and physicians to share in any savings. The only other umbrella groups that were approved for this model were Dignity Health in California and the Greater New York Hospital Association. Later this spring, CMS plans to allow more hospitals to apply for this option.

The second and third models also involve hospital care. Under the second type of project, hospitals will accept a retrospective bundled payment for an inpatient stay and any other services—including for post-acute facilities—related to the care for a period of time after a patient is discharged. The applicants chose whether they wanted the period of time after the stay to last 30, 60, or 90 days.

The third model is similar to the second but is designed just for post-acute health care facilities. This payment period starts when a patient enters one of those facilities, such as a skilled nursing home, after being discharged from a hospital.

Under the fourth model, CMS will give a single bundled payment determined ahead of time to the hospital that would fund all services given to the patient during the inpatient stay by the hospital, physicians and other providers. Physicians and other providers will tell Medicare what their services cost, but the hospital will use money from the bundled payment to pay these providers. If a patient is readmitted within 30 days after discharge, neither the hospital nor the individual providers would get any additional money.

Providers in the second, third, and fourth models are expected to start taking on financial risk in July, after completing a series of requirements, including finalizing contracts and passing CMS anti-fraud reviews.

"We think it's a nice portfolio that meets different providers in different places," CMS Innovation Center Director Richard Gilfillan said.

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