Executive Summary

The Centers for Medicare & Medicaid Services’ (CMS’) mandatory bundled payment pilot project makes clear that the agency intends to reform Medicare reimbursement.

  • Hospitals in 75 geographic areas are required to participate in a five-year pilot project that puts them at risk for the cost of hip and knee replacements from the time of surgery until 90 days after discharge.
  • Already, more than 6,500 providers are participating in the Bundled Payments for Care Improvement project, a voluntary program where participants can choose from 48 clinical episodes and four models.
  • Even if they won’t be part of a bundled payments arrangement, case managers need to shift their thinking to prepare for the future of reimbursement by developing close working relationships with post-acute providers, knowing the services and quality delivered by post-acute providers, and being aware of the costs for the entire episode of care.
  • Case managers will not be able to handle all the responsibilities necessary in a bundled payment arrangement if they have large caseloads.


If there was any doubt that the Centers for Medicare & Medicaid Services (CMS) is serious about reforming Medicare reimbursement, the notion should by dispelled by CMS’ plans to require hospitals in 75 geographic areas to participate in a test of bundled payments for joint replacement.

The Comprehensive Care for Joint Replacement (CCJR) payment model proposes to hold hospitals accountable for the quality of care they deliver to Medicare fee-for-service beneficiaries for hip and knee replacements from surgery through recovery.

All hospitals in the selected geographic area, with the exception of critical access hospitals, would bear risk for the cost of hip and knee replacement surgery from the time of surgery through 90 days after discharge.

Under the five-year model proposed by CMS, the program would begin with admissions on or after January 1, 2016. Hospitals would continue to be paid under Medicare’s fee-for-service system. They would not be at risk the first year but, beginning in the second year, hospitals would receive an additional payment based on their quality and cost performance or would have to repay Medicare for a portion of the costs.

In a news release announcing the program, CMS pointed out that the rate of complications after joint replacement surgery is more than three times higher at some facilities than at others with the average Medicare expenditures for surgery, hospitalization, and recovery ranging from $16,500 to $33,000.

“This proposal furthers the administration’s commitment to transform our health system to deliver better quality care and spend our healthcare dollars in a smarter way. We are committed to changing our healthcare system to pay for quality over quantity, so that we spend our dollars more wisely and improve care for patients,” said Health and Human Services Secretary Sylvia M. Burwell in an announcement issued July 9. The agency is accepting comments on the proposal through Sept. 8.

According to CMS, the program builds on the demonstration projects already underway through the Bundled Payments for Care Improvement (BPCI) demonstration program, a voluntary program that began in April 2013 with more participants coming on board in January 2014. CMS reports that more than 6,500 providers are participating. Providers may choose from one of four models and 48 clinical episodes which CMS says represent 70% of Medicare spending.

“CMS is very committed to bundled payments and wants to expedite the rollout. Hospitals need to prepare for bundled payments because they are not going to go away,” says Deirdre Baggot, PhD, MBA, RN, senior vice president of The Camden Group and expert panel reviewer for the BPCI, Models 2-4.

Most recently, CMS added oncology to the program. Baggot predicts that outpatient cardiology will be added in the future.

Quickly following CMS’ initiatives, commercial payers and self-funded employers are following suit and developing their own bundled payment initiatives, Baggot adds.

Bundled payments are part of a whole alternative payment model by CMS with the goal of moving Medicare fee-for-services to a payment model based on quality, adds Karen Zander, RN, MS, CMAC, FAAN, president and chief executive officer of the Center for Case Management.

She points out that Burwell has announced a goal of making 50% of all Medicare fee-for-service payments through alternative payment models such as bundled payment arrangements and accountable care organizations by the end of 2018.

“Reimbursement models are changing and hospitals are going to have to change the way they think about providing care in order to succeed. Changing the mindset is what is going to be difficult, but it has to happen,” Zander says.

Bundled payments fundamentally change the way healthcare is reimbursed but the initiative represents just the beginning of changes in reimbursement models that are likely to be instituted in the future, says Francois de Brantes, MS, MBA, executive director of the Health Care Incentives Improvement Institute and chair of the Fifth National Bundled Payment Summit in Washington, DC, in June.

“The evolution of payment is going through a natural cycle. Up until now, the healthcare industry tended to pick one payment method or the other, either fee-for-service or capitation. My personal view is that we will end up with a number of modes of payment as being the most effective for certain goals. The healthcare industry is too complicated for just one or two payment arrangements,” he says.

For instance, if preventive care were part of a bundle or a capitated arrangement, it would create an incentive for providers to reduce services. This would have a negative impact because when patients don’t get preventive care, they may get sick and incur large healthcare costs, de Brantes adds.

When it first was rolled out, BPHI experienced some bumps in the road with data integrity and delays but much of that has been resolved, Baggot says.

“Think of this as a big research study and, yes, there was some attrition early on which is to be expected to some extent. Today, the program has stabilized and is working much better. Providers are happy and patients are getting better care, which is what really matters, after all,” Baggot says.

Bundled payment arrangements have a relatively low entry point in that the initial investment is much less than for an ACO, for example, Baggot says.

Bundled payments are a fixed price or lump sum for a predetermined set of services over a specified period of time. Anyone can own a BPHI bundle and pay providers. However, the most common scenario has been health systems receiving the funds and distributing them, Baggot says. “Whoever owns the bundle also owns the risk, so it comes down to who has the financial wherewithal to bear the risk,” she says.

The owners of the bundles subcontract with other providers for a fixed payment. One health system could work with hundreds of providers, she adds.

Bundled payment arrangements don’t need to be confined to one giant health system, de Brantes points out. “There is more being done by different entities. Even if the parent companies are in competition, they are tied by a common payment program, whether the payer is Medicaid, Medicare, or one of the commercial health plans. The payment model forces some level of teamwork and if one organization doesn’t want to participate, there are others out there,” he says.

Bundled payments and other alternative payment models should significantly reduce unneeded tests and unnecessary treatments because there is no incentive to do more, Baggot says. In fact, the incentive is to do only what the patient needs. Under alternative payment models, the theory is that the population gets healthier and the cost goes down due to reduced unnecessary testing and treatments, she says.

“Bundled payments work and make the population healthy. Instead of over-testing and over-treating, providers start looking at what patients really need,” Baggot says.

For instance, she points out that even with all the PSA screenings performed in the country, the death rate from prostate cancer has not been reduced.

The bundled payment initiative puts the focus back where it should be — on the patient and the care provided throughout the continuum, eliminating the silos that are prevalent in the healthcare industry, de Brantes says.

“All of these new payment models have been designed at the onset with the specific objective of putting the focus back on the patient and to foster teamwork between providers. Even if they are not part of the same organization, if they are tied financially to a contract, they will be inclined to act as a team and patients will benefit,” he says.

Hospitals are going to have to evaluate their current practice patterns to identify potential areas for improvement, Zander adds.

“In order to survive in today’s healthcare world, hospitals need to understand the major cost drivers for care and develop predictive care paths that replicate the most efficient clinical decisions across the care continuum. In order to do this, hospitals have to have real-time reporting, monitoring and accountability for utilization, outcomes, and demonstrating value,” she says.

Hospitals that are still paid on a fee-for-service basis may find it difficult to prepare for bundled payments, points out Toni Cesta, RN, PhD, FAAN, and partner and consultant in Dallas-based Case Management Concepts. But, despite the challenges, hospitals need to start preparing now for the changes that are inevitable, Cesta says.

“The hospital team needs to look at how bundled payments and other pay-for-performance measures are going to have a financial impact. They have to develop strategic plans now, rather than waiting until the change happens. Hospitals that are preparing themselves for the future are going to be the ones that do the best,” she says.

Even if their hospitals are not participating in the bundled payment initiative, are not a part of an ACO, or in one of the geographic areas that must participate in the mandatory program, case managers still need to prepare for the future, says Beverly Cunningham, MS, RN, partner and consultant in Dallas-based Case Management Concepts.

“Hospitals and case management departments have to be prepared because changes in reimbursement are going to happen and when they come, they’re going to come quickly. If hospitals wait to prepare for the new reimbursement initiatives, it will be much more difficult for them,” Cunningham says.

To prepare for the future, hospital case management directors should develop a team to come up with bundled payment strategies and how they will work at your hospital, Cunningham says.

“We’ve always supported a case management steering committee made up of case managers, key physicians, nurses, and representatives from ancillary services who understand what is going on with case management. Now, as we face the possibility of bundled payments, we need a large oversight team to look at what happens after discharge,” Cunningham says.

Case management directors should join Listserv mailing lists and keep up with the latest in reimbursement and rules and regulations from CMS and share them with their staffs, Cunningham says.

All case managers need to understand the changes occurring in healthcare, Cunningham says. She suggests an annual day-long educational update on what is going on in the healthcare environment and how it affects their responsibilities, Cunningham says.

“Even if you are not part of the bundled payments initiative, you have to know what is going on. If your hospital participates in bundled payments, you have to understand where you fit in the picture and how you need to align with the quality department, the hospitalists, and other key stakeholders in the hospital,” she says.