August 12, 2016

CMS Announces New Bundled Payment Models

By David Glusman, Partner, Advisory Services

CMS Announces New Bundled Payment Models Tax & Business

In July, the Centers for Medicare and Medicaid Services (CMS) significantly expanded its payment reform efforts by proposing bundled payment episodes for cardiovascular and orthopedic services. On July 25, CMS announced proposed rules for heart attack, bypass surgery, and hip or femur fracture episodes. The heart attack and bypass surgery episodes are the first bundled payment arrangement for cardiovascular services. The hip or femur fracture episodes are an expansion of the Comprehensive Care for Joint Replacement Model (CJR) program that was recently launched for elective knee replacements.

Under these proposed episodes, the hospital where a patient is admitted for a heart attack, bypass surgery, or surgical hip/femur fracture treatment will be accountable for the cost and quality of care provided to Medicare fee-for-service beneficiaries during the inpatient stay and for 90 days after discharge. All Part A and B services will be included in the episodes. Once the models are fully in effect, participating hospitals will be paid a fixed target price for each care episode, with hospitals that deliver higher-quality care receiving a higher target price.

At the end of a model performance year, actual spending for the episode (total expenditures for related services under Medicare Parts A and B) will be compared to the target price that reflects episode quality for the responsible hospital.

Hospitals that work with physicians and other providers to deliver the needed care for less than the quality-adjusted target price, while meeting or exceeding quality standards, will be paid the savings achieved. Hospitals with costs exceeding the quality-adjusted target price will be required to repay Medicare.

CMS is clearly taking steps to financially incent hospitals and physicians to work together on cost and quality. The challenge for hospitals is to become operationally efficient for their services. Hospitals will need to strengthen their relationships with physicians in developing cost-effective and evidence-based clinical protocols. Physicians will be required to manage patient care efficiently and to ensure patient compliance and self-management.

Patient Engagement
Marcum’s work with hospitals and physicians has identified two important areas that hospitals and physicians need to take into consideration as they move forward under the alternative payment arrangements that are being developed by CMS and private payers. One item that is frequently overlooked in the Medicare bundled payment models is patient engagement. Medicare’s alternative payment arrangements usually apply to fee-for-service Medicare beneficiaries who are able to see any participating provider for any service. Medicare takes no steps in these payment models to specifically engage the patient in seeking cost-effective or high-quality providers, nor is there any patient incentive or disincentive to influence how they act (choose locations for services, for example). Thus, it falls upon the shoulders of hospitals and doctors to engage patients in managing their care more effectively. Both hospitals and doctors need to connect with patients who are covered by bundled payment arrangements and maintain contact post-discharge to manage expectations and intercede in any initial degradation of heath or symptom management.

Financial Arrangements
A second important item that has come out of our work with providers participating in alternative payment arrangements is the financial arrangements and understandings that are developed between the hospital and doctors who treat patients covered by alternative payment models from Medicare or private payers. The financial arrangements need to cover the full range of financial outcomes. Bundled payment models that generate shared savings and bonuses for quality provide the opportunity for incentive arrangements with physicians. The terms of these arrangements vary widely and they may be subject to provisions in the Anti-Kickback Statute or the Stark Law.

Physicians must take into consideration the impact of Medicare’s Merit-Based Incentive Payment System (MIPS). Clinicians who participate in Advanced Alternative Payment Models are exempt from MIPS. At this point in time, CMS has not officially stated that these new episodes qualify as advanced APM’s; therefore the nature of required downside risk for physicians is not entirely clear. However, it is likely that they will eventually be designated as part of an advanced APM.

Marcum’s healthcare consulting team can assist hospitals and physicians in responding to the payment reform models that are emerging from Medicare and private payers.

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David  Glusman

David Glusman


  • Advisory
  • Philadelphia, PA