HCFA project combines doctor, hospital payments

The Health Care Financing Administration (HCFA) has announced a demonstration project encouraging physicians and hospitals to work together to manage patient care. The Medicare Provider Partnership Demonstration will pay one lump sum, or "bundled" payment, for both hospital and physician services when Medicare beneficiaries are admitted to acute care institutions participating in the project.

The bundled payment will be paid to an organization representing both the physician and the hospital, such as a physician-based organization, for nearly all Medicare admissions to the hospital. The goal is to test how physicians and hospitals can organize to manage clinical care, whether doing so can improve efficiency and quality of care, and whether it can save money.

At present, hospital and physician payments are separate, and analyses show wide variations in the combined total for services provided to hospitalized patients.

The bundled payments for each patient case will cover all hospital, physician, and other health care professionals’ services provided during a hospital stay. The payment formula will start with the diagnosis-related group (DRG) definitions that already are used to pay hospitals. The average historical total payment for hospital and physician services per DRG will be determined for each participating partnership.

All sites participating in the demonstration proposed a discount to Medicare from their historical payment amounts. The demonstration is limited to six sites in New Jersey, New York, and Pennsylvania. These states were chosen because they have relatively high medical costs but low Medicare managed care penetration, and therefore the greatest potential for better coordination of clinical care and program savings. The sites are: JFK Medical Center, Edison, NJ; St. Peter’s PHO, Albany, NY; Crouse Irving Memorial PHO, Syracuse, NY; The Chester County PHO Inc., West Chester, PA; The PHO of Pennsylvania Hospital, Philadelphia; and St. Barnabas Health Care Sys-tem Provider Partnership (including St. Barnabas Medical Center, Livingston, NJ; Newark Beth Israel Medical Center, Newark, NJ; and Monmouth Medical Center, Monmouth, NJ).

The demonstration will begin over the next 12 months as each site becomes ready and will run for three years, with a possible extension for up to six years.