The Medicare Bundled Payment Initiative and Anesthesia Services


Anesthesia Business Consultants
is proud to announce the second in its series of lectures (webinars)

Jointly sponsored with
Tulane University School of Medicine, Department of Anesthesiology
The Center for Continuing Education, Tulane University Health Sciences Center

Webinar 2:  Are ACOs for Real?
Speaker:  Karin Bierstein, JD, MPH
Vice President for Strategic Planning and Practice Affairs, Anesthesia Business Consultants

Wednesday, September 14, 2011, 5:00 - 6:00 p.m. EST

This activity has  been approved for AMA PRA Category 1 CreditTM.
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August 29, 2011

The Centers for Medicare and Medicaid Services (CMS) has just announced the Bundled Payments for Care Improvement Initiative. On August 23, 2011, CMS invited providers to apply to help test and develop four different models of bundling payments. Letters of intent and completed applications are due on September 22nd, October 21st or November 4th, depending on the payment model. Full information is available at

Bundling payment for services that patients receive across a single episode of care for a clinical condition or for a procedure may be a feature of an Accountable Care Organization (ACO), a step on the way to forming an ACO, or a stand-alone method for providers to share responsibilities and recompense for a global patient care package. Episode payment models support accountability at the level of an individual patient’s care, in contrast to ACOs that are accountable for a predetermined patient population level. This reduces risk and operational complexity for the provider.

Typically, the hospital or health system will define the episode and will receive and allocate the global fee. As a hypothetical example, consider the components of a total hip replacement: (MS-DRG 470) and Hospital A’s average allowed charges for each:

Hospital Payment (LOS 6 days) $12,000
Professional Payment $  4,950
Surgeon $ 1,450  
Anesthesiologist $    500  
Radiologist $    600  
Pathology $    400  
Physical Therapy $ 2,000  
DME—Wheelchair Rental $      400


The payer (Medicare or health plan) will make a single payment to Hospital A, negotiated on the basis of the $17,350 in average total payments to the various providers involved in the episode.  Hospital A will allocate the funds to the physicians and, if applicable, to the DME supplier – not necessarily in the same proportions as the traditional, separate fee-for-service payments.  The importance of securing anesthesia’s seat at the table where the allocation decisions are made is obvious.

According to CMS, “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.”  In other words, bundled payments appear to create incentives to integrate and coordinate patient care.

Three prior Medicare demonstrations on bundled payment and two on gainsharing form the Bundled Payments for Care Improvement Initiative. These include the Medicare Participating Heart Bypass Center demonstration, the Medicare Cataract Surgery Alternate Payment demonstration, the Medicare Acute Care Episode (ACE) demonstration, the Physician Hospital Collaboration demonstration, and the Medicare Gainsharing demonstration.  See

A Real Life Example:  Geisinger’s Proven Care

The Geisinger Clinic, a real life example, launched its Proven Care program for coronary artery bypass graft in 2006.  Patient care teams had previously examined their own clinical care processes and patient records, researched best practices and identified 40 steps that were likely to improve outcomes and safety.  An electronic health record (EHR) system ensured the performance and documentation of pre-operative steps such as screening for warfarin need; intra-operative measures such as timely administration of prophylactic antibiotics and screening for hyperglycemia; post-operative steps including beta blockade, statin administration and tobacco counseling and post-discharge follow-up regarding medications and enrollment in cardiac rehabilitation.  Over the first 18 months, performance improved as shown in the table below:

Proven Care by the Numbers
(18 Months)
% Improvement/
Average Total Length of Stay  6.2  5.7
30-day Readmission Rate 6.9% 3.8% 44%
Patients With Any Complication 38% 30% 21%
Patients With Less Than One Complication 7.6% 5.5% 28%
Incidence of Atrial Fibrillation 23% 19% 17%
Neurological Complication 1.5% 0.6% 60%
Any Pulmonary Complication   7%   4% 43%
Blood Products Used 23% 18% 22%
Re-Operation for Bleeding 3.8% 1.7% 55%
Deep Sternal Wound Infection 0.8% 0.6% 25%


These results have permitted Geisinger to offer a single global fee for the entire identified period of time.  For the 206,000 members of the Geisinger Health Plan in Pennsylvania, the health system additionally covers the cost of in-network care if a patient experiences an avoidable complication within 90 days of the procedure.

The following Proven Care programs are now underway, in addition to CABG:  hip replacement, cataract surgery, PCI/ angioplasty, perinatal care, bariatrics, low back pain, and erythropoietin management.

The 4 Models in the Medicare Bundled Payments for Care Improvement Initiative

The Bundled Payments for Care Improvement Initiative is one of a number of Affordable Care Act programs intended to improve the quality of health care and reduce costs by replacing fragmented care with coordinated care centered on the patient‘s needs and preferences.

The Bundled Payments Initiative is seeking applications for four broadly defined models of care.  Models 1 through 3 would involve a retrospective bundled payment arrangement, with a target price (target payment amount) for a defined episode of care.  In a retrospective arrangement, the usual Medicare Fee For Service (FFS) payments are made and then the total payment for the episode is reconciled against the predetermined target price.  In a prospective arrangement, such as Model 4, the negotiated single payment is paid as a lump sum in lieu of FFS payment.  The table below, taken from CMS’ fact sheet, compares the features of each model.


The Request for Applications emphasizes CMS’ flexibility and intention to mentor applicants, as well as its desire that proposals be designed to attract private payers in addition to Medicare.  It contains additional information on the quality measures that must be included in proposals for the various models.  It also covers gainsharing arrangements, i.e., payments that may be made by hospitals and other providers to physicians and other practitioners as a result of collaborative efforts to improve quality and efficiency, and their legality.  The 45 pages describe in detail an application process that few, if any, anesthesiologists are likely to spearhead today, but the document is a valuable reference on the background of the Bundled Payments Initiative and the criteria by which proposals will be evaluated.  Hospitals, health systems, larger ambulatory surgery centers and certainly payers will be studying the RFA closely.  Do become familiar with the concepts and the terminology.

We hope that this Alert will be a useful introduction to CMS’ latest integrated-care program and that we will be able to help put anesthesiologists behind the wheel of bundled payment vehicles through future communications.

With best wishes,

Tony Mira
President and CEO