Structural reforms to the Medicare and Medicaid programs will be on the table as the debate over entitlement reform intensifies.  There are three areas of opportunity for changing our entitlement programs: adding prevention initiatives that truly slow or reduce the growth in chronic disease prevalence; introducing care coordination into the original Medicare program; and reforming how we pay health care providers.

On November 30th, the Centers for Medicare and Medicaid Services (CMS) provided additional information regarding the implementation of the Bundled Payment for Care Improvement (BPCI) initiative.  The CMS released a preliminary list of 48 “episodes of care” where providers would be paid a targeted rate lower than actual fee for service payments. The extent of the episodes is notable since they would cover approximately 70 percent of all Medicare expenditures if applied to all providers and to all 48 episodes. Under the initiative, participating providers could identify which of the 48 conditions they were interested in testing.

These reforms could replace the clearly flawed sustainable growth rate formula and provide strong financial incentives to integrate inpatient and post-acute health care services.  Over 75 percent of spending in the Medicare program is associated with patients under treatment for 5 or more medical conditions and virtually all the growth in Medicare spending since 1987 has come from patients with multiple chronic health care conditions.  Despite these fiscal facts, original Medicare does not provide coordinated care for chronically ill patients. Such care requires “team-based care” that includes transitional care, comprehensive medication management, health coaching, and a care coordinator among other elements.

The BPCI complements other initiatives currently piloted by CMS such as accountable care organizations (ACOs). ACOs are designed to address population costs and quality and therefore must include preventive initiatives that avert disease and reduce the incidence and prevalence of chronic health care conditions. The BPCI complements these broader efforts as it provides strong incentives to manage overall spending within an episode of care.

CMS Will Test Three Bundled Payment Models

The BPCI has considerable promise for providing strong financial incentives to build integration across inpatient care and post-acute care in the original Medicare program. CMS is interested in exploring three payment models.  Medicare spending for Part A and B services would be included in each model, with Part D spending outside the scope of the initiative. In each case, participating providers can share savings (subject to CMS guidance) when actual spending is lower than the target. The three models to be tested include:

  • Payment for an inpatient stay for one of the 48 inpatient conditions plus targeted payments for services provided 30 or 90 days post-discharge. This approach pays providers using the current Medicare fee-for-service payments and then compares total payments to a target (minimum of 3 percent discount for episodes 30 to 89 days post-discharge and 2 percent for 90 days or longer.
  • Payment for post-discharge services linked to one of the 48 inpatient conditions. This would include post-acute care services as well as any hospital readmissions.  Provider payments would use the traditional fee-for-service payment to all providers with a reconciliation compared to a predetermined target.
  • Payment for inpatient stays only. These payments would include both inpatient and physician-provided services as well as any related hospital readmissions.  Payments for this approach differ from the previous two models and would be prospectively determined amounts for both the hospital and physician services (the hospital would distribute payments to physicians from the bundle).

Bundled Payments Will Encourage Health System Reforms

Several changes in how hospitals and other providers interact will have to occur in order to meet the discounted targets in the payment bundles. First, either hospitals will contract with, establish joint ventures with, or vertically integrate with post-acute care provider practices to create the capacity to effectively manage and coordinate services for patients post-discharge.  Joint ventures are already accelerating between hospitals and home health agencies in anticipation of these payment changes and the potentially lower rates of payment for certain hospital readmissions within 30 days.

Second, a key component to effect post-acute care management of patient care will be effective care coordination services that would now be provided to patients in the original Medicare program.  This must include efforts to provide effective transitional care, comprehensive medication management, health coaching, and links to nurse care coordinators.  Third, health information technology will be critical for tracking both expenditures across sites of care, as well as monitoring changes in patient health status.

Finally effective feedback loops across both inpatient and post-acute care settings will be important to assure on-going improvements in both efficiency and patient outcomes.

The BPCI could represent a new and important next step in transitioning away from fee-for-service spending toward more integrated payment and delivery system reforms.  Broader use of the bundled payments should likely start with the retrospective approach where providers are paid under current Medicare fee-for-service payment rules with actual payments to providers reconciled to meet a pre-established target.  Depending on the experience with the approach, transitioning to a prospective payment for the bundle could occur.

The Challenges Of Moving Toward Bundled Payments

Moving toward bundled payments does raise considerable challenges as well, however.  Lessons learned from the PROMETHEUS pilot project highlight some of these challenges.  These include developing credible quality measures for services provided within each of the care bundles, allocating spending among multiple providers, and having real time clinical and financial information post-discharge, among others. Accountability for care post-discharge is also important. Hospitals could joint venture with care coordination firms or home health agencies with the contractual understanding regarding their responsibilities for overall spending and outcomes. Accountability becomes more difficult if a single entity does not organize the care and is instead provided by multiple un-related provider groups.

Tracking spending and outcomes across multiple providers post-discharge will also provide challenges. This would require the primary entity (hospital, physician group practices) to track spending real time and provide timely feedback on quality and performance to providers caring for patients in each of the care bundles. In this respect, integrated health plans that already provide team-based care could be best positioned to work with the bundled payment approach.

Changing the financial incentives in the system is critical for creating the types of prevention and delivery system reforms that we need.  Much of the growth in Medicare spending is linked to rising chronic disease prevalence; for example, diabetes prevalence among Medicare beneficiaries has doubled over the past 20 years, to 21 percent today.  Moreover, with so much Medicare spending linked to unmanaged patients with multiple chronic health care conditions, adding care coordination to the program is essential. Broad use of payment reforms such as the BPCI could accelerate the types of delivery system reforms that are needed to modernize the Medicare program.