Healthcare Business News

Payment overhaul

CMS' bundled-payment initiative nears launch

By Melanie Evans
Posted: February 2, 2013 - 12:01 am ET

Medicare took another step last week toward dramatically overhauling how it pays hospitals, doctors and other providers.

Officials named roughly 430 organizations eligible to participate in a large-scale bundled-payment pilot project, which is scheduled to launch in July. It simultaneously announced more that two dozen hospitals have signed up to test an expanded physician pay-for-performance program beginning in April.

The CMS has had small bundled-payment projects in the past and in 2011 adopted bundled payments for dialysis care. But the current program, which involves 48 possible conditions, will serve as a dramatic test of the viability of a universal bundled-payment system.

The effort stands to be Medicare's largest pilot of payment bundles, should the 430 organizations enter into bundled-payment contracts this July.

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The two new payment experiments will last three years and are among several attempts under the 2010 health reform law to devise alternatives that wean providers from the fee-for-service system, where each surgery, test or service gets reimbursed. Health policymakers fault fee-for-service reimbursement for incentivizing providers to deliver care beyond what is actually medically necessary or ignore quality problems since it allows them to get paid for repeat procedures.

Bundled payments would reimburse hospitals, doctors and other providers, such as nursing homes and home health agencies, a lump sum for all the medical care provided for a specific condition or during a set period of time. Providers that can treat patients for less than the lump sum see a profit, but lose money if care costs more than the bundled-payment amount.

Some policy analysts fret bundled payments will create an incentive for providers to deny care. “Incentives to skimp on care are inherent in any fixed-episode payment system because there is no payment for additional services,” a group of experts wrote in Health Affairs in late 2011.

The CMS will monitor results to see if that happens. Contracts will “analyze quality information available from claims and quality reporting from the awardees (and) assess care experience and health outcomes,” an agency spokeswoman said. “CMS' monitoring effort will aim to … detect inappropriate practices including care stinting, patient selection to maximize financial gain and cost shifting.”

North Shore-Long Island Jewish Health System, based in Great Neck, N.Y., has been selected as a candidate for four of its hospitals to test bundled payments. Howard Gold, senior vice president of managed care, said the 11-hospital group plans to focus in coming months on nurse training and discharge planning to better manage care and costs under bundled payments. Gold said a bundled-payment experiment in the 1990s failed without such preparations.

The smaller initiative announced last week allows hospitals to offer doctors a financial incentive to cut costs and meet specified performance targets for clinical measures—such as use of a low-cost drug instead of a pricier prescription. The pay-for-performance program uses a shared-savings model, since it simultaneously reduces Medicare payments to hospitals.

Of the 32 organizations that will offer physicians financial incentives under the effort, 29 are in New Jersey. CentraState HealthCare System will see its hospital payments cut by 0.5% in the second half of the first year, said Daniel Messina, senior vice president and chief operating officer for Freehold-based CentraState. Cuts will increase to 1% in year one and 2% in year two.

Messina said the system's savings in the initial pilot totaled $2.2 million and physician incentives varied based on individual physician performance.

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