October 19, 2011
Page 2
To: / American Health Care Association Members
Date: / October 19, 2011
Subject: / Overview of the Center for Medicare and Medicaid Innovation’s Bundled Payment Initiative
I. Overview
In August 2011 the Centers for Medicare & Medicaid Services (“CMS”), through the Center for Medicare & Medicaid Innovation (the “Innovation Center” or “CMMI”), launched the “Bundled Payments for Care Improvement Initiative” (the “Bundled Payments Initiative” or the “Initiative”). In conjunction with the launch of the Bundled Payments Initiative, CMS released a Notice requesting Initiative applications in the August 25, 2011 Federal Register.[1]
In launching and implementing the Bundled Payments Initiative, the Innovation Center utilized authority granted to the Secretary of the Department of Health and Human Services (the “Secretary”) through section 3021 of the Patient Protection and Affordable Care Act (the “ACA”).[2] Section 3021 of the ACA authorizes the Secretary to test innovative delivery arrangements to reduce federal spending while preserving or enhancing the quality of care. The Innovation Center seeks Initiative applicants that will strive to improve the coordination of Medicare beneficiaries’ care through an entire episode of a patient’s illness—from the hospital to post-hospital care settings. Very broadly, Initiative participants will offer a discount to Medicare as compared to customary Medicare fee for service (“FFS”) spending. The participants will be paid the Medicare savings beyond the discount level, but will assume risk for Medicare expenditures above an established risk threshold.
II. Key Dates and Specific Instructions
If a skilled nursing facility (“SNF”) or other post-acute care provider organization wishes to participate in the Bundled Payments Initiative’s Models 2, 3, or 4 with other providers, it must pay close attention to specific instructions provided in the application materials and key deadlines. The following provides an outline of important deadlines and instructions.
A. Key Dates
· The group of providers that intends to bundle payment using Model 2, 3, or 4 must submit a letter of intent to no later than 5:00 pm EDT November 4, 2011.[3]
· In addition, Bundled Payments Initiative applicants for Models 2, 3, and 4 that wish to receive historical Medicare claims data must complete and submit a Research Request Packet, a Data Use Agreement (“DUA”), and DUA signature addendum(s) (if necessary), along with the letter of intent, to by 5:00 pm EDT November 4, 2011.
· Finally, completed applications (including appendices) for Models 2-4 of the Bundled Payment Initiative must be submitted to no later than 5:00 pm EDT March 15, 2012.[4]
B. Specific Instructions
· The Letter of Intent form, as well as the Research Request Packet, DUA, and DUA addendum(s) should all be submitted simultaneously via email to . Further, CMS stipulates that all forms must be submitted in a searchable digital format, such as a searchable PDF, with attachments encrypted. Encryption must be compliant with Advanced Encryption Standard (“AES”) 256 encryption guidelines. Applicants must send a decryption key to in an email separate from the application materials.
· CMS requires that these materials be submitted via email.
· In lieu of a written signature on the application materials, applicants are to use a digital signature with a third-party certificate (for verification purposes). CMS notes that a scanned, written signature in the signature box will not be accepted. If an applicant cannot provide a digital signature with a third-party certificate, attach a scanned copy of the letter of intent in addition to the searchable digital copy.[5]
III. Background on Bundled Payments
On a very basic level, bundled payments would provide payment based on a combined, pre-determined price agreed to between the payer (in this case, Medicare) and the entity that contracts to manage the bundle (such as a hospital, managed care company, contracted network of providers, or other organization formed for this purpose). Unlike the FFS model, where different providers are paid separately for the same patient’s episode of care, a bundled payment would cover all of the care furnished by all of the providers involved in a patient’s episode of care. It is important to note that in the Bundled Payment Initiative, the bundled payment would cover Medicare Part A and B services only. Because SNFs care for many patients discharged from a hospital to post-acute care, they could play a large role in the Bundled Payments Initiative and other Medicare bundled payment programs in the future.
The idea behind bundling payments is that providers who have a shared financial incentive, through the predetermined price for a patient’s episode of care, will cooperate with each other to better coordinate care furnished to a patient, improving the quality of the care while reducing spending related to that care. In its information on the Bundled Payments Initiative, CMS touts the potential benefits of bundling, stating:
Research has shown that bundled payments can align incentives for providers – hospitals, post acute care providers, doctors, and other practitioners – to partner closely across all specialties and settings that a patient may encounter to improve the patient’s experience of care during a hospital stay in an acute care hospital, and during post-discharge recovery.[6]
Bundled Medicare payments can be either retrospective or prospective. In retrospective bundled payments, the providers involved in an episode of care have a predetermined target price. However, instead of being paid that predetermined target price, the providers are paid the traditional Medicare FFS amounts and then the total FFS payments for the patient’s episode of care are reconciled against the predetermined target price.[7] The predetermined price typically would provide Medicare a discount as compared to the historical, total payment under the FFS model. In prospective bundled payments, the providers are paid one, predetermined, negotiated payment instead of FFS payments.[8]
IV. The Bundled Payment Initiative’s Four Models
CMMI invites proposals with one of following four approaches to bundled payments:
· Model 1:Retrospective payment models for the acute inpatient hospital stay only.
For this model, the episode of care consists of the acute inpatient hospital stay for all Medicare beneficiaries admitted to a hospital participating in the Bundled Payment Initiative. The episode of care includes all Part A services furnished to “included beneficiaries” during a hospital stay, including hospital diagnostic testing and all related therapeutic services furnished by an entity wholly owned/operated by the admitting hospital in the three days prior to admission and the hospital facility services furnished during the hospital stay. Awardees will offer a discount from the usual Part A hospital inpatient MS-DRG payments; the minimum discount varies by year, ranging from 0 percent for the first six months, gradually increasing to 2 percent by year three.
· Model 2:Retrospective bundled payment models for hospitals, physicians, and post-acute providers for an episode of care consisting of an inpatient hospital stay followed by post-acute care.
All beneficiaries admitted to an awardee acute care hospital for agreed-upon MS-DRGs will be included in the episode. The episode begins with the inpatient hospital admission to a participating provider and continues for a minimum of 30 days following discharge. The episode includes all hospital services (as defined in Model 1), plus Part A and Part B services furnished during the hospital stay, and Part A and Part B services furnished in the post-discharge period related to the episode “anchor.”In addition to the inpatient services, bundled services include inpatient hospital readmission services; long term care hospital (“LTCH”) services; inpatient rehabilitation facility (“IRF”) services; SNF services; home health agency (“HHA”) services; hospital outpatient services; independent outpatient therapy services; clinical laboratory services; durable medical equipment (“DME”); physician services; and Part B drugs. Applicants should propose a target price for the episode that includes a single rate of discount on the expected Medicare payments for all included Part A and Part B services. CMMI requires a minimum discount of 3 percent for applicants who propose a 30-89 day post-discharge episode, and a 2 percent minimum discount for a 90 day or longer episode.Awardees may not restrict beneficiary choice of provider, including post-acute care provider, and awardees will be financially liable for care for included beneficiaries that is furnished by providers who are not participating in the model.
· Model 3:Retrospective bundled payment models for post-acute care where the bundle does not include the acute inpatient hospital stay.
The episode anchor is the initiation of post-acute care services at a SNF, IRF, LTCH, or with a HHA within 30 days of beneficiary discharge from an acute care hospital for agreed-upon MS-DRGs. The episode will begin on the date post-acute services are initiated with an awardee and continue through a minimum of 30 days following initiation of the episode. The episode must include all related Part A and Part B services furnished during the episode period, including related readmissions (all services in Model 2 except the anchor acute inpatient services). Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare payments for all included services. Awardees may not restrict beneficiary choice of provider; awardees are financially responsible for care for included beneficiaries furnished by providers who are not directly participating in the model.
· Model 4: Prospectively-administered bundled payment models for hospitals and physicians for the acute inpatient hospital stay only.
Proposals under Model 4 will build on the ongoing Medicare Acute Care Episode (ACE) demonstration for cardiac and orthopedic inpatient procedure hospitalizations, but will expand to additional geographic areas and clinical conditions.CMS notes that, unlike the ACE demonstration, the Bundled Payment Initiative will not include sharing savings with patients because such policies previously “have proven operationally challenging to administer and confusing for beneficiaries.” The episode of care is the acute inpatient admission to an awardee for agreed-upon MS-DRGs through patient discharge.The episode will include Part A hospital services (as defined in Model 1) and Part B professional services, along with specified services furnished during certain readmissions. CMS will consider applicant proposals around risk adjustment, which must include a description of the methodology and may include plans for updating risk adjustment on a yearly basis. Applicants should propose a target price for the episode that includes a single rate of discount off of the expected Medicare Part A and Part B payments for all hospital facility and professional services furnished during the hospitalization and related readmissions for all beneficiaries with the agreed-upon MS-DRGs (a minimum 3 percent discount). CMS and the awardee will agree to the price for the bundle of services in advance, and the awardee bears full risk for the price of the episode.
Additional requirements for each model are set forth in the request for application (“RFA”).In general, CMS seeks to ensure that total Medicare expenditures under any model will decrease relative to what they would have been absent this initiative, and that quality measures are met. Gainsharing arrangements are permitted under each model, but they must meet criteria “designed to ensure that care is not inappropriately reduced, that the quality of care remains constant or is improved, that there are not inappropriate changes in utilization or referral patterns, and to guard against fraud, waste, and abuse.” CMS states in the RFA that it will consider using its waiver authority with respect to fraud and abuse laws and other Medicare provisions for such gainsharing arrangements as appropriate. Bundled payment agreements will include a performance period of three years, with the possibility of a two-year extension, beginning with program start date (which may be as early as the first quarter of CY 2012 for Model 1 awardees).
V. Letters of Intent, Research Request Packet, and Data Use Agreement
As described above, organizations interested in participating in the Bundled Payment Initiative’s Models 2-4 must submit a letter of intent (“LOI”) form to by 5:00 pm EDT November 4, 2011. The letter of intern form is available at http://www.innovations.cms.gov/areas-of-focus/patient-care-models/bundled-payments-for-care-improvement.html. While letters of intent will not be binding, organizations that submit their letters of intent after the deadline will not be considered for participation in the Bundled Payment Initiative. On page two of the letter of intent form, an applicant must list the name, address, and CMS Certification Number (i.e. the Medicare provider number) for the applicant and each Bundled Payment Initiative participating organization. Again, this form is not binding, and therefore the list of organizations provided can change. However, this list and the other information provided by the letter of intent will provide CMS with insight as to what sort of provider organizations will be participating in which Model of the Initiative.
As part of the Bundled Payment Initiative, CMS will make available Medicare claims data to organizations that submit the LOI, and request and are approved to receive the data. In order to receive the data from CMS, an organization must submit a completed DUA form, DUA signature addendum(s) (if necessary), and a completed Research Request Packet. The DUA and DUA addendum are available at http://www.innovations.cms.gov/areas-of-focus/patient-care-models/bundled-payments-for-care-improvement.html. The Research Request Packet requires applicants to explain their study design and specifically describe how they plan to use the data provided by CMS “to construct an episode definition and develop care episode redesign protocols.”[9] The Research Request packet is available at http://www.innovations.cms.gov/areas-of-focus/patient-care-models/bundled-payments-for-care-improvement.html. These materials must be submitted along with the LOI to by 5 pm EDT November 4, 2011. CMS requests that the completed application materials are submitted simultaneously, and notes that all forms must be submitted in a searchable digital format with attachments encrypted. Further, CMS requires that these materials be submitted via email.
The data provided by CMS is intended to allow organizations interested in participating in the Bundled Payment Initiative “to develop robust episode definitions and discount proposals based on the historical experience of providers in the applicant’s geographic area.”[10] According to CMS:
At a minimum, the data will include beneficiary-level claims with masked beneficiary identifiers. Specifically, the Limited Data Set will cover the potential applicant’s geographic region and will include Part A and Part B payment amount, MS-DRG/HCPCS codes (as applicable), services rendered, dates of services, diagnosis and procedure codes, and institutional provider, as well as beneficiary age and sex, for applicants that choose to propose a risk adjustment methodology.