While much of the “buzz” in the health care industry is over the concept of accountable care organizations (ACOs), the Centers for Medicare and Medicaid Services have developed other programs pursuant to the Patient Protection and Affordable Care Act that don’t get as much press. These programs present viable alternatives to providers not yet ready or not desiring to become full-blown ACOs that may offer them an opportunity for additional reimbursements. It is important to know about these types of programs, because providers may be approached about joining one.

One such program that CMS announced this summer and has already begun rolling is the Bundled Payments for Care Improvement Initiative. This program takes some of the broad concepts of an ACO, such as coordinated care with an opportunity to share in savings, but focuses it to a specific proposed area without having all of the mandates that are requisite for participation in the Medicare Shared Savings Program. This article provides a summary of this particular program.

Bundled Payments Program

The Bundled Payments for Care Improvement Program was announced by CMS’s Innovation Center, which was created pursuant to PPACA. The basic premise of the program is that rather than pay each provider for a medical service of care on a fee-for-service basis, as is generally the current payment structure for Medicare, CMS would pay participating providers a lump sum for multiple health care services that the patient receives during an “episode of care.” Like one of the fundamental theories underlying ACOs and the Shared Savings Program, CMS believes that bundling payments that a patient receives for an episode of care is a way to encourage multiple providers (i.e., physicians and hospitals) to work better together for coordinated care.

The concept of an episode of care is at the heart of this program. Focusing on an episode of care is what makes the program different than previous capitation models of reimbursement by third-party payors, which focus on payments to providers over a set time period. Providers have the flexibility to determine and define what constitutes an episode of care. Its definition will also depend on the model of care (described below) to which the participant has applied and been accepted. For providers participating in Models 2 through 4, Medicare would provide historical claims data to help applicants craft a definition. One example would be care provided by various providers inpatient and post-discharge (including re-admissions to the hospital) for a heart attack. Like in the Medicare Shared Savings Program for ACOs, beneficiaries retain the right to receive services from the health care provider of their choice.

Under the program, applicants are eligible for participation under four different models of care. They would apply to CMS for one or more of the models in which they desire to participate. Three of these models involve a retrospective bundled payment arrangement for the episode of care and the fourth involves a prospective payment arrangement. In all four programs, the health care provider participants face economic risk if they do not meet targeted numbers. Participation in other Medicare programs does not necessarily preclude participation in the Bundled Payment for Care Improvement Program, although CMS retained some discretion in this regard. In addition, it is possible to participate in more than one model of care at a time if each separate application is accepted by CMS.

Generally speaking, as described in CMS’s fact sheet on the program, in the three retrospective models, the providers would apply to CMS and set a target payment amount for an episode of care, as they define it, and as accepted by CMS, in their application. Distinctions between the three retrospective models are described below. The various providers participating in these models would continue to receive discounted fee-for-service payments. These payments generally would be totaled at the end of the episode of care and compared to the target price. The participants may then be able to share in the savings. However, if the total cost of care exceeds the target price, CMS will only reimburse up to the target price, representing risk to participants. In certain models, the participant would have to pay money back to Medicare.

In the only prospective payment model (Model 4, which is for inpatient stays only), CMS would make one up-front payment to the hospital to encompass all services within the episode of care during the inpatient stay. Physicians and providers would be paid for their services by the hospital, based upon submission of “no pay” claims forms to CMS for services rendered during the inpatient stay.

The Four Models of Care

Model 1 is a retrospective payment plan. This model is for inpatient stays only at a general acute care hospital and the types of services included within the bundle are inpatient hospital services. The hospital would be paid a discounted amount from the Inpatient Prospective Payment System and physicians would be paid separately under their normal Medicare fee schedule. The discounted rate from the IPPS would be as proposed by the applicant and accepted by CMS (in its literature, CMS suggested a range starting at zero in the first year up to a 2 percent discount in the third year of participation). The hospital and physicians would be eligible to share in gains based upon better coordination of care.

Model 2 encompasses both the inpatient stay and post-acute care. The post-acute care portion would end 30 to 90 days after discharge, based upon the participant’s selection in its application. In this retrospective payment model, the target price would be compared to actual payments made pursuant to the fee schedule. The expected discount would be a minimum of 3 percent for 30-89 days post-discharge and 2 percent for a post-discharge period of 90 days or more. In this model, as well as Model 3, if actual expenditures were less than the target price, Medicare would pay the difference. Conversely, if the expenditures exceeded the target price, the participant would be responsible to pay Medicare the difference.

The third model applies only to post-discharge services, which must encompass services that last for a minimum of 30 days post-discharge. The discounted price would be proposed by the applicant. Payments would be made in the same manner as in Model 2.

Model 4 is the only prospective payment model. This model, like Model 1, applies only to inpatient stays. The hospital would receive a single payment in advance for all services rendered to the patient during the hospital stay, and the hospital would be responsible to distribute fees per service to the physicians out of the bundled payment. The hospital would be responsible for increases in aggregate Medicare Part A and B expenditures beyond a certain threshold.

Reimbursement Methods in Transition

The Bundled Payments for Care Improvement Initiative is another example of the government attempting to transition payment for health care services to more of a value-based system versus a fee-for-service system. This is a theme that permeates PPACA. Fee-for-service surely is not going anywhere anytime soon, and this program (as well as others) keeps that basic payment structure intact. However, it does give insight as to the way that health care reimbursement is possibly transitioning.

Interested readers may find out more about the Bundled Payments for Care Program at http://innovations.cms.gov/initiatives/bundled-payments. •

VASILIOS J. KALOGREDISis the president and founder of Kalogredis Sansweet Dearden & Burke, a health care law firm, and Professional Practice Consulting Inc., a health care consulting firm, in Wayne, Pa. Among his areas of expertise are group practice arrangements, practice sales and mergers, doctor contract drafting and negotiation, tax and retirement planning for physicians, joint ventures, fraud and abuse matters and evaluation of practice options for physicians. He can be contacted at 800-688-8314 or at BKalogredis@KSDBHealthlaw.com.

KARILYNN BAYUS is an associate at the firm. Her practice involves both litigation of health care related matters, including representation of licensees before the professional boards, and representing clients in health care transactions. Bayus graduated from Temple University’s Beasley School of Law in 2006. She may be reached at KBayus@KSDBhealthlaw.com.