New Proposed Medicare Bundled Payment Model Aims to Improve Quality, Cut Costs

This past Monday, July 25, the Department of Health and Human Services (HHS) proposed a new model to pay hospitals that treat Medicare beneficiaries for heart attacks, cardiac bypass surgery, hip replacements, and other hip surgeries with an emphasis on controlling costs and improving outcomes for patients.

If implemented, this “bundled” payment model would shift Medicare payments from quantity to quality by creating incentives for hospitals to deliver better care at a lower cost.

According to the Centers for Medicare and Medicaid Services (CMS), who published a fact sheet about the proposed rule, “These models would reward hospitals that work together with physicians and other providers to avoid complications, prevent hospital re-admissions, and speed recovery.”

Under this proposed bundle payment model, hospitals that admit patients for a heart attack, bypass surgery, or hip/femur fracture treatment will be offered a target price from Medicare for all of the services during inpatient stay and for 90 days after discharge.

The hospitals that work with physicians and others to deliver the needed care for less than the target price, while also meeting or exceeding quality standards, would receive the savings achieved. Meanwhile, hospitals with costs exceeding the target price would be required to repay Medicare.

Hospitals would be incentivized to provide high-quality care. Each hospital would be assessed on quality metrics appropriate to each episode. These assessments would use performance and improvement on required measures and the submission of voluntary data for other quality measures, according to the CMS fact sheet.

“Today’s proposal is an important step to improving the quality of care Americans receive and driving down costs. By focusing on episodes of care and rewarding successful recoveries, bundled payments encourage hospitals to coordinate care to achieve the best outcomes possible for patients.” HHS Secretary Sylvia Burwell said on Monday.

HHS noted that in 2014 alone, more than 200,000 Medicare beneficiaries were admitted into hospitals for either heart attack treatment or bypass surgery, which cost Medicare over $6 billion. In addition, the costs of surgery, hospitalization, and recovery were wide-ranging for these patients. Cost varied by 50 percent across hospitals, according to the HHS.

The proposed mandated bundle payment model would standardize and curb these costs by holding hospitals responsible for the cost and quality of care provided to Medicare beneficiaries. Under the current model, Medicare typically pays hospitals and doctors separately for each service; hospitals and doctors that do more get paid more. Ideally, the new model would emphasize overall health outcomes, rather than the volume of services provided.

“We think this is a significant positive step forward on behalf of patients. I think we are moving at the right pace. That’s absolutely where I would want the delivery system to be focused,” said CMS Chief Medical Officer Patrick Conway.

If approved, this bundled payment model would be phased in over a five-year period, beginning July 1, 2017. Once the plan is implemented, this model would be mandatory for nearly every hospital accepting Medicare beneficiaries in 98 metropolitan areas.

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