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How All The King’s Horses and All The King’s Men Were Given One Single, Bundled Payment to Put Humpty Together Again

In a previous post, I briefly touched on Bundled Payments for Care Improvement, or BPCI. As you may recall, a bundled payment model encourages providers to team up across the care continuum to treat a patient. These teams receive a single, fixed price for all the services necessary to treat a patient in a particular episode of care, such as a hip replacement. This moves away from the traditional fee-for-service model, where providers are paid separately for each service rendered to the patient. This new, innovative payment model hopes to reduce health care costs and to enhance efficiency and coordination of care.

Navigating through this topic can be a little daunting, so with the help of the tale of an infamously ill-fated egg, here are the four BCPI models explained:

Model 1: Acute Care

Humpty Dumpty sat on a wall and in his old age, lost his balance and had a great fall. Mr. Dumpty was rushed to the hospital with a broken hip and in need of a hip replacement. In Model 1, Mr. Dumpty’s episode of care begins in the hospital plus any related care within three days prior to hospitalization. All the providers involved in his treatment, such as the ambulatory service, surgeon and hospital, get paid separately for their services rendered. Then, once Humpty is discharged from the hospital, Medicare pays the hospital a lump sum to cover all the services carried out during Humpty’s episode of care. If the aggregate cost for treating Humpty comes in under the cost of the lump sum given by Medicare, a portion of the hospital’s savings is shared amongst the physicians. However, if the actual costs exceed the target threshold amount, bundled payment awardees are expected to pay Medicare for the excess expenditures.

Model 2: Acute and Post-Acute Care

Similar to Model 1, Humpty’s episode of care includes his hospital stay plus any related care within three days prior to hospitalization. However, it differs in that the episode continues for up to 90 days after his discharge from the hospital, which can include any visits to his rehabilitation or physical therapy facility. All participating providers continue to receive separate payments for their services. Once Humpty’s post-acute care is complete, Medicare compares the aggregate cost of all the providers involved in Humpty’s treatment against the target price of the bundled payment. If that total exceeds the target bundled price, the participants must pay Medicare for the difference. If the total falls below the target bundled price, providers get to keep the difference and benefit from the gainsharing bonus, resulting in little motivation for physicians to shorten lengths of stay or opt for higher-cost services.

Model 3: Post-Acute Care

Model 3 shares the same payment model as Model 2, however, it excludes the initial hospital visit from the bundle. Therefore, Humpty’s episode of care is initiated with the first post-acute care service provider, which in his case begins with his rehabilitation stay, and must be at least 30 days long.

Model 4: (Prospective) Acute Care

In Model 4, Medicare makes a fixed, upfront bundled payment to cover all hospital and related readmission services based on historical spending trends. Unlike the other three models, providers don’t actually receive separate payments during an episode of care. When Humpty is admitted to the hospital, physicians and practitioners submit “no-pay” claims to Medicare and are paid by the hospital out of the upfront bundled payment. This model bears the highest amount of financial risk because participants are fully responsible for costs in excess of the bundled price.

The graph below summarizes the care continuum portions included within each model.



More Points to Consider

*All models cover some portion of a patient’s episode of care ranging from pre-acute to related readmissions

*Medicare takes an expected minimum discount, ranging from 0% to 3%, from each of the bundled payments

*Quality reporting measures must be proposed and established by applicants in advance

*Providers continue to receive fee-for-service payments, in which the aggregate cost is then compared to the target bundle price, except in Model 4.

*Models 2-4 propose targeted clinical conditions based on Medicare Severity Diagnosis-Related Groups (MS-DRGs). Model  1 includes all MS-DRGs.

These models are designed with the intention of identifying and implementing cost-saving strategies across the care continuum. By achieving high-value care with just a single payment, providers can focus their efforts on providing the most coordinated care to put Mr. Humpty Dumpty together again.

For additional information, please visit the CMS website and refer to their BPCI Learning & Resources and BPCI Fact Sheet pages.
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