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Fall 2015


A Basic Primer on the Bundled Payments for Care Improvement Initiative

Joette Derricks, CPC, CHC, CMPE, CSSGB
Jackson, MI

The Centers for Medicare and Medicaid Services (CMS) Bundled Payments for Care Improvement (BPCI) initiative is comprised of four broadly defined models of care, which link payments for the multiple services beneficiaries receive during an episode of care. Under the initiative, organizations enter into payment arrangements that include financial and performance accountability for episodes of care. The intent is for these models to lead to higher quality and more coordinated care at a lower cost to Medicare.

Traditional Medicare reimburses physicians on a fee-for-service (FFS) system, through Part B, and hospitals under an inpatient prospective payment system (IPPS) through Part A. Both systems are triggered by individual services being provided to beneficiaries for a discrete illness or course of treatment. Various studies have demonstrated that this approach can result in fragmented care with minimal coordination across providers and healthcare settings. As we have heard many times, the payment systems are geared to reward the quantity of services offered by providers rather than the quality of care furnished.

The Affordable Care Act (ACA) established an Innovation Center within CMS to test alternative payment and service delivery models that have the potential to reduce health care expenditures while preserving or enhancing the quality of care. The BPCI initiative is one of a dozen initiatives that the Innovation Center is currently testing. BPCI is composed of four broadly defined care models, which bundle payments for multiple services beneficiaries receive during an episode of care. Under the initiative, organizations enter into payment arrangements that include financial and performance accountability for an entire episode. Table 1 shows the four models that a participating organization may use to develop their program.

In Model 1 in the table, the episode of care is defined as the inpatient stay in the acute care hospital. Medicare pays the hospital a discounted amount based on the payment rates established under the IPPS used in the original Medicare program. Medicare continues to pay physicians separately for their services under the FFS. Model 1 began in April 2013.

Models 2 and Model 3 involve a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care. In Model 2, the episode includes the inpatient stay in an acute care hospital plus the post-acute care and all related services up to 90 days after hospital discharge. In Model 3, the episode of care is triggered by an acute care hospital stay but begins at initiation of post-acute care services with a skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. Under these retrospective payment models, Medicare continues to make FFS payments; the total expenditures for the episode is later reconciled against a bundled payment amount (the target price) determined by CMS. A payment or recoupment amount is then made by Medicare reflecting the aggregate expenditures compared to the target price.

In Model 4, CMS makes a single, prospectively determined bundled payment to the hospital that encompasses all services furnished by the hospital, physicians, and other practitioners during the episode of care, which lasts the entire inpatient stay. Physicians and other practitioners submit “no-pay” claims to Medicare and are paid by the hospital out of the bundled payment. Models 2, 3 and 4 began in October 2013.

CMS has developed some unique definitions for the BPCI initiative. They are:

  • Awardees are entities that assume financial liability for the clinical episode spending and have signed an Agreement with CMS.
  • Episode Initiators are healthcare providers that trigger BPCI episodes of care; they do not bear risk directly (unless they also serve as an Awardee), but participate in the model through an agreement with a BPCI Awardee.
  • Conveners are entities that bring together multiple health care providers. These conveners can participate as either Awardees that enter into Agreements with CMS and bear risk or Facilitator Conveners that do not enter into an Agreement with CMS and do not bear risk.

Over the course of the initiative, CMS will work with the Awardees to assess whether the models being tested result in improved patient care and lower Medicare costs. Awardee Agreements may also include proposals for gainsharing among provider partners. A potential downside to the Awardee’s ability to control cost is due to beneficiaries retaining full freedom of choice to choose services and providers, including care from providers not participating in the BPCI initiative. Additionally, BPCI participants and their partnering providers are required to provide beneficiaries with written notification that explains the existence and purpose of BPCI, the beneficiary’s right of access to medically necessary services, and the beneficiary’s right to choose any provider or supplier of items or services.1

In August 2015, CMS announced that 360 organizations have entered into agreements to participate in the BPCI initiative and an additional 1,755 providers have partnered with those organizations. In addition, CMS announced a new Medicare Part A and B payment model, the Comprehensive Care for Joint Replacement Model (CCJR). (See ABC Alert A Role for Anesthesiologists in CMS’s New Comprehensive Care for Joint Replacement Payment Program, August 24, 2015.) Although the Comprehensive Care for Joint Replacement Model is distinct from the Bundled Payments for Care Improvement initiative, both initiatives are part of the innovative framework established by the ACA to move the healthcare system toward one that rewards providers based on the quality, not quantity, of care they deliver to patients.2

Although CMS is within their mandate to establish or expand payment initiatives, BPCI results are far from conclusive. In a May 12, 2015 letter to CMS, the Healthcare Financial Management Association (HFMA) commented that BPCI models still have significant design and operational issues that should be resolved prior to any mandatory expansion.3 Also, based on CMS data, Model 2 is the only model that has seen acceptable participation. CMS’ announcement of the CCJR model is easily understood based on an examination of CMS data as of April 2015 that showed the most prevalent episode included in BPCI Models 2-4 is major joint replacement of the lower extremity.4

The data to date does not suggest what type of bundled payment model CMS may endorse or mandate in the future. The timing of such a decision is likewise unknown. CMS’ aggressive goal to have 30 percent of Medicare payments in alternative payment models such as accountable care organizations and bundled payments by the end of 2016 and 50 percent in by the end of 2018,5 however, means that bundled payment initiatives and other innovation programs are here to stay in one form or another.


1 http://innovation.cms.gov/initiatives/bundled-payments/

2 https://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2015-Press-releases-items/2015-08-13.html

3 “HFMA Comments on Bundled Payments for Care Improvement Initiative,” May 12, 2015. http://www.hfma.

4 CMS Innovation June 22, 2015 presentation to HFMA Patient Care Models Group.

5 https://www.cms.gov/Newsroom/MediaReleaseDatabase/Fact-sheets/2015-Fact-sheets-items/2015-01-26-3.html


Joette Derricks, CPC, CHC, CMPE, CSSGB has 30+ years of healthcare financial management and business experience. She is a member of MGMA, HCCA, AAPC and other associations and a regular speaker at practice management conferences.