Barb LettsThe Bundled Payments for Care Improvement (BPCI) initiative is in an effort to lower Medicare costs through payment arrangements that include performance accountability and shared financial risk. Participants in one of the four BPCI models agree to receive a discounted, risk-adjusted Medicare payment for bundled services that are associated with certain clinical conditions defined by Medicare Severity DRGs (MS-DRGs). According to the Centers for Medicare & Medicaid Services (CMS), 2,150 organizations are participating in Model 2, for which the bundle includes the inpatient stay, related readmissions 30 days after hospital discharge, and post-acute care 30, 60, or 90 days after discharge. The payment includes Medicare Part A and B physician services.

Participants continue to receive fee-for-service Medicare payments for the bundled services, with the aggregate payment reconciled against a target price on a quarterly basis. Any payment reductions beyond the discount are paid to the participant and are optionally used to fund a gainsharing pool. If payments are above the target price, the participant must pay the difference to CMS. The first reconciliation payment has a two-quarter lag, meaning participants won’t know if they owe or are due money until 10 months after the start of the program.

How can organizations track and monitor their performance in the program? An advantage of being a BPCI participant is having access to Medicare claims data for all services associated with patients at the participating facility and other settings who fall within the episode definition and criteria. Participants are able to view three years of historical claims (July 1, 2009, through June 30, 2012) that form the basis of the target price calculation, as well as a recent 18-month period of claims (spanning Jan. 1, 2013-June 30, 2014). Once in the program, organizations receive claims on a monthly basis, allowing them to compare historical performance with current performance.

For example, participants choosing to bundle hip- and knee-replacement clinical episodes may track post-acute care utilization of home health and skilled nursing because part of their care redesign plan is to reduce utilization of skilled nursing services. As skilled nursing is the higher-cost option for post-acute care compared with home health, any reduction in skilled nursing utilization that is deemed medically appropriate will reduce Medicare spending during the performance period. Another participant may be focused on reducing readmissions.

The Medicare claims arrive in a comma-separated values format, organized in 19 files with beneficiary demographic information and identifiers that can be linked to raw claims. A separate file is provided for each of the following: inpatient hospital, outpatient hospital, professional Part B, durable medical equipment, home health agency, skilled nursing facility, hospice, and diagnosis/procedure codes.

Although having access to this information can be advantageous, it also brings challenges. Specific definitions must be followed to build the episode costs from the claims data. The first step—identifying inpatient stays using MS-DRGs—is easy. The process gets trickier when identifying readmissions and Part B claims because there are exclusions to consider. The most obvious readmission exclusions are MS-DRGs in the BPCI program because those would initiate another episode. For example, the BPCI clinical episode “major joint replacement of the lower extremity” (MS-DRGs 469 and 470) cannot have a readmission with the same MS-DRGs. Other exclusions may be for conditions that are considered unrelated. For example, MS-DRG 005 and 006 liver transplants are not related to major joint replacements of a lower extremity and therefore would be excluded as a readmission in that BPCI clinical episode.

BPCI provides participants with reconciliation files that essentially summarize how they performed in the quarterly reporting period, but should organizations validate these summaries rather than merely taking them at face value? Should they risk waiting 10 months into the program to receive their first reconciliation report and possibly being surprised at the results? Some participants that lack data analytics capabilities in-house have retained external firms with expertise in bundled payments to provide monthly reports. Participants that actively monitor their performance have had success keeping physicians engaged and assessing opportunities to redesign care.


Barbara Letts is senior manager, The Camden Group, Los Angeles, and a member of HFMA’s Southern California Chapter.

Publication Date: Thursday, August 21, 2014