Hospitals Pay Physicians in Medicare Bundled Payment Model

August 24, 2011

August 24, 2011 — Physicians would get reimbursed by an admitting hospital instead of by Medicare for inpatient care they deliver to seniors, under 1 of 4 models of pilot projects for bundled payments that the Centers for Medicare and Medicaid Services (CMS) unveiled yesterday.

In this particular model, hospitals would receive a predetermined or prospective payment for all the services furnished during a particular kind of inpatient episode (eg, a hip replacement), and would pay physicians and other providers out of that fixed amount.

Healthcare reform legislation passed in 2010 calls for pilot projects to test the concept of bundled payments in Medicare. At this time, when a senior undergoes a course of treatment, the various providers involved are paid separately by Medicare, which, according to CMS officials, is a formula for uncoordinated, inefficient care. By letting providers divide a single payment, CMS hopes to motivate them to cooperate to improve quality and lower costs, as opposed to simply increasing the volume of services to earn more.

"Patients don't get care from just one person: it takes a team, and this initiative will help ensure the team is working together," said Kathleen Sebelius, secretary of the US Department of Health and Human Services, in a press release.

A previous Medicare pilot project for bundled payments involving coronary artery bypass graft surgeries saved $42.5 million, or 10% of the costs, over the course of 5 years, according to the US Department of Health and Human Services.

Applicants Can Propose an Episode of Care for Bundled Payment

CMS is inviting hospitals, physicians, and other providers, including those that have formed accountable care organizations, to apply to participate in a bundled payment pilot project under 1 or more of the 4 models.

In contrast to model 4, which lets hospitals cut checks to physicians, models 1 through 3 would reimburse providers on a retrospective basis, with CMS as the sole payer. According to a fact sheet released by the US Department of Health and Human Services, CMS and the providers would set a bundled payment amount for a particular episode of care by applying a discount to what Medicare normally pays. Providers would proceed to bill Medicare as usual, but at a negotiated discount. If their total fee-for-service payments are less than the bundled payment target, the providers can share the difference.

The fact sheet does not explain what happens if fee-for-service payments exceed the bundled payment amount.

Model 1 is intended for inpatient care only, with physician fees not included in the bundled payment or subject to a discount, according to CMS. Model 2 applies to inpatient stays and postdischarge services, and model 3 to postdischarge services only.

Providers applying to participate in a pilot project must propose a clinical condition to be covered by a bundled payment, define the time frame for care and the services involved, and draft a plan for quality assurance and improvement. Applicants for model 1 must submit a letter of intent by September 22 and a completed application by October 21. Those deadlines for the other models are November 4, 2011, and March 15, 2012, respectively. The government expects the pilot projects to start on a rolling basis in 2012.

More information about the bundled payment program and about how to apply is available on the CMS Web site.

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