Bundled Payment and ACO Arrangements – Clinically Integrated Payment Methodologies

Bundled payment involves an agreement between a provider group and a payor for the management of a defined segment of care for an agreed price. A bundled payment would include one payment for all providers involved in the episode of care that is within the bundled area. All providers providing care within the episode of care are entitled to be covered under the bundled payment.

The idea behind bundled payment is to place providers across the spectrum of the applicable care continuum at financial risk and to provide shared financial incentives. In theory, this forces otherwise disjointed providers to cooperate to better coordinate care and to coordinate at a higher level with other elements of the continuum of care.

Bundled payment is one of the primary reasons why providers are mobbing toward clinically integrated health care systems. CINs provide a mechanism for providers across the continuum of care to agree upon protocols and other mechanisms to help them be more cost efficient in the management of bundled areas of care while maximizing the quality of care and outcomes provided to patients.

The Center for Medicare and Medicaid Services has developed a Bundled Payment Program through its Innovation Center. (76 Fed Reg. 53, 137, August 25, 2011). The BPCI (Bundled Payment Initiative) creates four models for bundled payment under the Medicare program and provides some guidance regarding the models that may be offered in the private pay area. However, there is no guarantee the private models will follow the CMS model.

Bundled payments can be either prospective or retrospective in nature. Where the payment is retrospective, Medicare pays in a fee-for-service basis subject to later reconciliation if the episode of care is classified under a bundled payment category. Retrospective bundled payment is contrasted with prospective bundling where the bundling classification is defined in advance and one single, predetermined amount is paid based on the predetermined amount.

As mentioned above, clinically integrated organizations provide a useful mechanism to facilitate bundled payment mechanisms. Under the Medicare program, there are two potential roles that a CIN can be either an Awardee or a facilitator. An Awardee  agrees to assume payment risk under bundled payment initiatives. It is their responsibility to enter contractual arrangements with the full continuum of care that is required to service the bundled episode. Awardees must contract with “episode initiators: which can include physician groups, hospitals, and potentially other providers depending on the model of bundled care that is involved.

For more information on bundled payment mechanisms and structuring clinically integrated organizations, feel free to contact John Fisher in our health care practice group.