The Centers for Medicare & Medicaid Services (CMS) recently announced that over 500 organizations will begin participating in the Bundled Payments for Care Improvement initiative. The large number of participating organizations now exceeds the number of Medicare ACOs, and makes the Bundled Payments initiative the largest voluntary Medicare payment innovation program. Participating organizations are located throughout the United States, and are displayed on CMS’s website.

The Bundled Payments initiative is comprised of four “models of care”, under which Medicare will bundle payments for multiple services that beneficiaries receive during an episode of care. Under the traditional model, Medicare makes separate payments to providers for each of the individual services they furnish to beneficiaries, which rewards the quantity of services offered by providers rather than the quality of care furnished.

Model 1 focuses on episodes of care relating to inpatient stays in the acute care hospital, based on discounted IPPS payment rates.

Model 2 focuses on episodes of care including the inpatient stay and also post-acute care ending either 30, 60, or 90 days after hospital discharge. Episodes of care under Model 3 begin at the initiation of post-acute care, and do not include the inpatient hospital stay. Under Models 2 and 3, participants set a target price for the bundled payment based on discounted Medicare FFS rates. During the episode of care, the participant continues to be paid on a fee-for-service basis. After the episode of care, Medicare compares the total amount of payments made by CMS to the participant to the target price; any amounts exceeding the target price must be repaid to CMS, and any savings may be distributed by the participant to providers.

Finally, Model 4 relates only to inpatient stays in the acute care setting, but payment is made on a prospective basis, and readmissions within 30 days after hospital discharge will be included in the original bundled payment. Participants proposed a target price and CMS will make a single, prospective payment equal to such target price at the beginning of each episode of care.