“Bundled Payments for Care Improvement Initiative” will be voluntary for hospitals, physicians, and other providers, including medical laboratories

Yesterday, Medicare officials took the first steps to implement a program for bundled Medicare payments by issuing documents which describe how this program would work. At least two of the four models for bundled reimbursement will include clinical pathology laboratory tests as part of the bundled care arrangement.

Clinical laboratory managers and pathologists will want to pay close attention to this development. The Centers for Medicare and Medicaid Services (CMS) titled this new effort the “Bundled Payments for Care Improvement Initiative.” It is a voluntary program. Only those providers who submit proposals and bids which are accepted will be paid through this program. The goal is to encourage different providers to collaborate on the care of a patient. Each of the four models for bundled healthcare has a slightly different payment arrangement.

Voluntary Program and Providers Are Invited to Participate

One distinctive feature of this new program is that Medicare officials are inviting providers—including hospitals, office-based physicians, and nursing homes, among others—to submit proposals and bids for a bundled reimbursement tied to a specific healthcare service of their choice. Medicare is not establishing a list of procedures for which it will pay providers a bundled reimbursement. Participation in the Care Improvement Initiative will be voluntary for providers.

The concept is simple. Groups of providers would join together and submit a proposal and a bid (or: target) price for a healthcare service. Once an episode of care took place, the providers would get a first payment based on a traditional Medicare fee-for-service price that was discounted. Total payments would be compared to the target price. If it was determined that Medicare saved money, then the providers would share in those savings.

In its announcement about the new “Bundled Payments for Care Improvement Initiative,” CMS described four models of bundled reimbursement. Medpagetoday.com described the four models as follows:

  • Model 1:Hospital services provided to a beneficiary during an acute inpatient stay, where physicians work together to improve care
  • Model 2:Hospital, physician, post-acute provider, and other Medicare-covered services provided during the inpatient stay and during recovery after discharge to the home or another care setting
  • Model 3:Hospital, physician, post-acute provider, and other Medicare-covered services beginning with the initiation of post-acute care services after discharge from an acute inpatient stay
  • Model 4:Inpatient hospital and physician services and related re-admissions in which a prospective payment would be sent to the hospital, which would decide how to distribute it among providers

Clinical Laboratory Tests included in Models Number 2 and 3

In documents released to the public, CMS specifically identified clinical laboratory tests in the Model 2 and Model 3. It described the clinical services that should be addressed in the bid with this language: “In both Models 2 and 3, the bundle would include physicians’ services, care by a post-acute provider, related readmissions, and other services proposed in the episode definition such as clinical laboratory services; durable medical equipment, prosthetics, orthotics and supplies (DMEPOS); and Part B drugs.”

Dark Daily is first in the lab industry to call attention to the fact that clinical laboratory and anatomic pathology tests may be included in the bundled reimbursement proposals and bids. Should this Medicare care improvement initiative prove successful in coming years, it could mark the first steps toward creating outpatient/outreach “DRGs” where medical laboratory testing—currently paid under the Medicare Part B Laboratory Testing Fee Schedule on a fee-for-service basis—would be paid as part of a future single bundled reimbursement remitted by Medicare to the participating providers.

Pathologists with long memories will remember how the introduction of DRGs (Diagnostic-Related Groups) back in 1983 triggered significant changes in clinical laboratory testing performed for Medicare patients treated in hospitals under the Medicare Part A program. DRGs radically changed the economics for hospital laboratories and pathologists in their role as hospital-based physicians.

The driving force behind this new initiative is the Accountable Care Act of 2010 (ACA). As part of this law, the newly-organized Center for Medicare and Medicaid Innovation within CMS is charged with searching for innovative ways to improve patient outcomes while helping to reduce the cost of care. The inspiration for the bundled payments initiative came from earlier research and several demonstration projects for bundled care.

Demonstration Projects Produced Better Outcomes and Saved Money

In one demonstration project involving heart bypass surgery, savings totaled $42.3 million, a number that was about 10% of projected costs. Care was improved and hospital mortality was lowered by a significant amount. This same demonstration project saved patients approximately $7.9 million in co-insurance.

CMS set a deadline for healthcare organizations to submit their letter of intent for the Bundled Payments for Care Improvement initiative by September 22, 2011, for Model 1 and by November 4, 2011, for Models 2, 3 and 4. Medicare officials noted that the guidelines are designed to give providers wide flexibility in selecting conditions to bundle, creating their own system for delivering integrated healthcare, and deciding how to allocate payments among the difference providers who participate.

This bundled reimbursement initiative is just one of several different payment models about to be rolled out by CMS. Accountable Care Organizations (ACO) will begin contracting with CMS on January 1, 2012, for example. Value-based purchasing is another approach toward paying providers that is part of the ObamaCare legislation.

Collectively, these different efforts show how Medicare officials are working to move the American healthcare system away from a primarily fee-for-service reimbursement model and toward other forms of payment. Although it will be several more years before these new payment models are introduced into wider use, it will be smart for clinical laboratory administrators and pathologists to track the successes and failures associated with these different demonstration projects.

Sooner rather than later, Medicare is going to want to wean clinical laboratories and anatomic pathology groups away from the existing fee-for-service payment method. Whatever CMS implements in its place is not likely to pay medical laboratories as much as is paid for clinical laboratory testing currently.

Related Information:

CMS Testing Bundled Payments for Medicare

CMS seeks providers to test bundled payments

HHS Announces New Bundled Payment Initiative

Bundled Payments for Care Improvement, from CMS Website

General Fact Sheet on the Bundled Payments for Care Improvement initiative