CMS is building momentum with its bundled payment programs and upping the stakes for hospitals.

The Centers for Medicare & Medicaid Services (CMS) recently published a proposed rule that furthers the U.S. Department of Health and Human Services’ goal to promote cooperative, value-based care and tie at least 50 percent of Medicare payments to quality or value through alternative payment models by the end of 2018. The proposed rule builds on prior experiments with episode-based payment models (EPM) and confirms predictions that bundled payments will become a broader reality and a mandatory reimbursement framework for hospitals – whether they are ready or not.

The proposed rule would impact hospitals in the mandatory Comprehensive Care for Joint Replacement (CCJR) program that began April 1, 2016, by adding a bundle for certain surgical hip/femur fracture treatments. It would also mandate that 98 randomly selected metropolitan statistical areas (MSAs) participate in new bundled payment models for cardiac care, including acute myocardial infarction (AMI) and coronary artery bypass graft (CABG). CMS has identified 294 MSAs eligible to be drafted into the cardiac bundles, which means hospitals in one-third of the eligible MSAs would be subject to the rule’s retrospective payment adjustments for AMI and CABG for performance years beginning July 1, 2017 through December 31, 2021.

Without doubt, some hospitals will have a negative view of the EPMs and hope to escape participation. But there are a couple of bright spots in the proposed rule:

  • It addresses the interplay between the EPMs and CMS’s proposed criteria for an Advanced Alternative Payment Model (APM) under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). Under some circumstances, clinicians who are EPM “collaborators” (including hospital employees) may be able to improve or avoid Part B reimbursement under the new Merit-Based Incentive Payment System (MIPS).
  • The proposed rule also introduces a new incentive payment model for cardiac rehabilitation that will apply to 45 of the MSAs in the new cardiac EPMs and 45 MSAs that were not selected.

Bundled Payments Gain Momentum

CMS began experimenting with bundled payments years ago. Notable programs include the five-year CABG demonstration program that began in 1991, the three-year Acute Care Episode demonstration for cardiac and orthopedic surgery that began in 2009 and, more recently, the four models of the Bundled Payment for Care Improvement Initiative (BPCI)developed by the Center for Medicare & Medicaid Innovation and funded by the Affordable Care Act. Each program was voluntary and included only providers that were willing applicants. Building on these bundled payment initiatives, CMS is now upping the stakes.

Just last month, the voluntary Oncology Care Model commenced for physician practices administrating chemotherapy and participating payers, including commercial payers. And now CMS is proposing to introduce cardiac EPMs and expand CCJR to a more complex treatment episode, presumably before participants have had an opportunity to assess and learn from their experiences since they are just four months into the CCJR program.

The focus on bundles is not surprising. EPMs do not force providers to accept risk for an entire population or require large numbers of primary care clinicians, like other alternative payment models such as accountable care organizations. And the bundles allow CMS to target conditions that are common and expensive to treat, with great variation in cost. CMS projects $170 million in cost savings over five years in connection with the proposed EPMs.

Key Aspects of the Proposed Episode Payment Models

  • The EPMs begin with an inpatient stay and generally include all payments during the 90 days post-discharge.
  • Participating hospitals would be accountable for the cost and quality of care for the entire defined episode. Under this proposal, CMS sets a target price annually for each EPM that is adjusted by a discount factor based on the treating hospital’s quality performance. During the performance year, providers and suppliers bill and are paid as usual under applicable payment systems. At the end of the performance year, CMS compares the hospital’s average EPM costs to the target. If the target price less the discount exceeds the hospital’s average EPM cost, the hospital receives a “reconciliation” payment from CMS. If the target price less the discount is less than the hospital’s average EPM cost, the hospital would make a “repayment” to CMS.
  • Like CCJR, the proposed rule includes upside and downside risk for participants, phased in over time with symmetrical stop-loss and stop-gain. The downside risk would not apply in the first performance year. The proposed rule provides additional protections for certain participants that may have a lower risk tolerance and less infrastructure and support to achieve efficiencies for high-payment EPMs.
  • Only EPM hospital participants are directly subject to these payment requirements. The proposed rule contemplates that participants would align with other providers and suppliers as EPM “collaborators” and could engage in gainsharing with the collaborators.
  • As authorized by Section 1115A of the Social Security Act, waivers are proposed for certain Medicare program requirements including telehealth; post-discharge nursing visits; model-specific decisions related to waiving the three-day stay requirement for skilled nursing facility payment; and performance of cardiac rehabilitation and intensive cardiac rehabilitation by non-physicians, including nurse practitioners, clinical nurse specialists or physician assistants.
  • While CMS does not provide for fraud and abuse waivers in the proposed rule, the agency recognizes that certain arrangements between EPM and third-party participants could implicate the fraud and abuse laws. As a result, CMS is soliciting comments on whether such waivers may be necessary.

Interplay with MACRA

As part of the May 2016 proposed rules implementing MACRA, CMS created two pathways for linking quality to payment: the MIPS and APMs. Under the proposed EPMs, eligible participants would be able to improve their MIPS score or qualify for advanced APM incentive payments. Notably, under the proposed MACRA rule, participants in the CCJR and BPCI programs are not eligible for the APM pathway. CMS received comments urging reconsideration and it appears the agency is trying to create a workable mechanism to treat certain EPMs as advanced APMs.

Cardiac Rehabilitation Incentive

The proposed rule cites to evidence that cardiac rehabilitation programs improve health outcomes but are underutilized. CMS also expressed concern that the proposed cardiac bundles may negatively affect the use of cardiac rehabilitation services. For these reasons, CMS is proposing financial incentives for facilities to encourage greater utilization of cardiac rehabilitation services. Hospitals will receive $25 per cardiac rehabilitation service for the first 11 services paid by Medicare during a heart attack or bypass surgery care period. After 11 services, a participating hospital will receive $175 per service. For a proper case-control evaluation, CMS will select participants from 45 geographic areas for AMI and CABG EPM participation and 45 MSAs that were not included in the EPMs.

Preparing for Implementation

While CMS is rolling out its payment reforms with surprising speed, hospitals will need time to evaluate and revise their operations to succeed under the new payment frameworks. As recognized by the American Hospital Association in a recent bulletin to members, hospitals should consider developing strategies to:

  • Identify patients eligible for bundles early and assess their risk for complications;
  • Establish data analytic and information sharing capabilities;
  • Track patients across the continuum of care;
  • Redesign care;
  • Engage physicians; and
  • Coordinate care transitions and manage post-acute services.

Given the complexity of these actions and scope of relationships with third parties that must be evaluated, hospitals should begin preparing for the possibility of the proposed payment reforms.

Now is also the time to voice concerns to CMS. Comments to the proposed rule are due by October 3, 2016.