New Bundled Payment Initiative Seeks to Lower Medicare Costs, Improve Care

The Centers for Medicare and Medicaid Services (CMS) announced on Thursday yet another initiative seeking to improve care coordination while lowering Medicare costs and involving hospitals, skilled nursing facilities, and other care providers: bundled payments.

More than 500 organizations will begin participating in the Bundled Payments for Care Improvement initiative, implemented under the Affordable Care Act with a purpose of testing how bundled payments for episodes of care can result in more coordinated care for beneficiaries at reduced cost to Medicare.

“The objective of this initiative is to improve the quality of health care delivery for Medicare beneficiaries, while reducing program expenditures, by aligning the financial incentives of all providers,” said Acting Administrator Marilyn Tavenner in a statement.


The initiative includes four models of bundling payments depending on the type of healthcare providers involved and the services included in the bundle.

Based on model type, CMS will bundle payments for services Medicare beneficiaries receive during an episode of care, with a goal of encouraging hospitals, physicians, skilled nursing facilities, home health agencies, and other relevant care providers to work together to improve health outcomes while lowering costs.

Organizations of providers participating in the bundled payments initiative will agree to provide a discount to CMS from expected payments for each episode of care, while working with their provider partners to reduce hospital readmissions, duplicative care, and complications in an attempt to lower costs through care improvement.


The 32 awardees in payment Model 1 will begin testing bundled payment for acute care hospital stays as early as April 2013.

Phase 1 (January to July 2013) of Models 2, 3, and 4 also began as of Thursday, with more than 100 participants partnering with more than 400 provider organizations. Phase 1 participants will receive new data from CMS on care patterns and learn how to improve care, and are generally expected to go on to participate in Phase 2, where approved participants can opt to take on financial risk for episodes of care starting in July 2013.

Model 3, specifically, relates to episodes of care triggered by an acute care hospital stay and will begin at initiative of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital, or home health agency.

As of Jan. 31, 14 new organizations and their partners have been selected to participate in Phase 1 of Model 3, including the following senior care organizations and companies:

  • Kindred Healthcare
  • Chatsworth at Wellington Green
  • The Evangelical Lutheran Good Samaritan Society
  • Golden Living

CMS and the Obama Administration have announced numerous initiatives with similar goals of improving care coordination, reducing hospital readmissions, and lowering costs to Medicare.

“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,” says CMS on its website.

Whether these initiatives work depends in part on the willingness of healthcare providers to participate and accept financial risk.

“Many providers have tended to look at managed care as something that was anathema,” says Val Halamandaris, president of the National Association for Home Care and Hospice (NAHC), mentioning some providers’ fears that managed care won’t pay a fair rate of reimbursement relevant to Medicare or private pay.

“People were skeptical at getting involved in managed care organizations, and were afraid they’d get caught in these situations to provide care even at their detriment if they’re losing money,” he says. “[Now,] people are saying, maybe I can work with managed care. We can collaborate—we need to persuade them we’re the best ally they can find in the healthcare spectrum and can help them become more efficient.”

Involving post-acute care providers in these initiatives is a must, says nursing home trade group the American Health Care Association (AHCA).

“We support the pilot, and we’re going to work closely with our four member organizations who have been selected to participate in Bundled Payments for Care Improvement,” says Greg Crist, vice president of public affairs at AHCA, adding that “too much is unknown at this point about the bundling policy. However, it’s important that post-acute involvement is a part of this—we see that as a key to success on any bundling initiative.”

Click here to view the lists of awardees for Model 1 and participants for Phase 1.

Written by Alyssa Gerace