Jim Alexander

All those wanting to be part of the Medicare payment-by-episode demonstration (aka bundled payment), come on down! And bring your data and signatures.

Participants in CMS's demonstration, officially called the Acute Care Episode (ACE) demonstration, will need to provide data on their orthopedic and/or cardiovascular services, and on their quality improvement efforts. And they'll need signatures of both the hospital and physician group partners.

t's a great opportunity. But will it work?

Bundling (not to be confused with bungling) has been tried before-and set aside (see Exhibit 1). As the term implies, it's about tying together physician and hospital payments to improve care coordination and thereby the quality of care-and possibly saving the government some Medicare dollars in the bargain.

Exhibit 1

exhibit-1-Payment by Episode

So why should this attempt stand a better chance of getting providers, regulators, and patients on board, if it didn't seem worth pursing the first time around? There are at least three big reasons:

  • With the earlier efforts in the 1990s, the limitations of technology posed a barrier-we've come a long way since then.
  • Today's social and political environments-both filled with hopes of reform for the healthcare system-seem ready for serious consideration of bundling payment as one way to achieve more efficient, and perhaps less costly, care.
  • CMS is desperate for cost savings to extend the fiscal viability of the Medicare program (see Exhibit 2 for more information about the bundling demonstrations).

Exhibit 2

sidebar-2-Payment by Episode

The Commissioners Like It

The Medicare Payment Advisory Commission (MedPAC) has been waving research reports that suggest we do a lousy job of coordinating the care of our patients. Those reports have produced a lot of evidence that "less" care is often better care, and that having fewer medical professionals involved is likely to produce better outcomes (not to mention a better experience all around for the patient).

Also, given MedPAC's special interest in finding opportunities for reducing Medicare costs, it's easy to see why the commissioners have been debating the bundling issue over recent months. Read their June report to Congress, Reforming the Delivery System, released June 13, recommending bundled payments as a way of improving the Medicare program.a

Still, developments might have been more gradual had CMS not fired a preemptive strike with the announcement of the ACE demonstration, shortly after the commissioners' final meeting before the summer break in April positioned the subject as the virtual centerpiece of the June 2008 report.

An Agenda Item for Your Medical Staff Meetings?

From the hospital and physician perspectives, bundling would bring new meaning to the term "working together." Although skepticism may abound, CMS has pointed to elements of the plan that could stimulate improved relationships between physicians and hospitals:

  • Volume at participating sites could increase as a result of CMS's providing financial incentives to beneficiaries to receive care at the sites and helping the participants to market the demonstration.
  • Participation could enhance a participant's community reputation as a Medicare Value-Based Care Center and strengthen the participant's product line.
  • The demonstration offers participants the opportunity to engage in gainsharing (where the providers can distribute payment for quality improvement as they deem most appropriate).

Key to success of the demonstration (as well as later Medicare programwide implementation, if warranted) will be the application of the bundled payment methodology to high-volume services where economies of scale can yield savings to both providers and the Medicare program.

And it just might be a change that can deliver significant patient care improvements, making it "the right thing to do."

Where Do You Sign?

Alas, the sign-up process has its own set of challenges. CMS isn't exactly welcoming all comers with open arms, even if the hospital and physicians are united in the desire to experiment with one payment for all services. The demonstration is relatively small, residing in the Medicare Administrative Contractors' Jurisdiction 4, which means participants will be selected from Texas, Oklahoma, New Mexico, and Colorado. And it will be limited to healthcare groups-specifically physician-hospital organizations with at least one physician group and one hospital that routinely provide at least one of those two main procedures included in the demonstration: hip/knee replacement surgery and/or coronary artery bypass graft surgery.

To qualify, groups must meet certain procedure volume thresholds and have established quality improvement mechanisms.

The Bottom Line

The providers serving on MedPAC (both hospital and physician) generally saw potential for improvement to Medicare through bundling payments. With the demonstration, there will be the opportunity to investigate a potentially significant health system change. Those with physician-hospital relationships conducive to managing such a change should monitor the demonstration closely and, if meeting the criteria for participating, consider getting out front by joining in.

Jim Alexander is a technical director in HFMA's Washington, D.C., office.

CMS: Projected Benefits of ACE Demonstration
  • Ability to develop efficiencies of care
  • Opportunity to engage in gainsharing
  • CMS marketing as a "Medicare Value-Based Care Center"
  • Potential to increase volume at participating sites
  • CMS provision of incentives to beneficiaries with special offers
  • Potential for enhanced reputation based on participation in a Medicare demonstration
  • Opportunity for product line development


a. www.medpac.gov/documents/Jun08_EntireReport.pdf

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