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Bundled Payment ModelMedicare’s new bundled payment policy saves millions of dollars annually for joint replacements – without impacting patient care, according to a new study.

Traditionally, hospitals are paid separately for the many components of care and rehabilitation. Under the bundled payment model, providers and/or healthcare facilities are paid for coordinating the total amount of services needed for a single, specific episode of care. With the shift to value-based care, bundled payments have become an important aspect in revenue cycle management. Many providers rely on physician coding services for proper review of medical documentation to identify all billable procedural codes and maximize bundled payments.

In April 2016, the Centers for Medicare and Medicaid (CMS) introduced the bundled payment strategy for hospitals providing hip and knee replacement surgeries. As part of the CJR program, about 800 hospitals in 67 cities were instructed to adopt the bundled payment model for joint replacements and 90 days of care after the surgery. The goal is to align physician incentives with outcomes of care as an alternative to the fee-for-service payment model.

In the Comprehensive Care for Joint Replacement (CJR) model, CMS totals the costs for the entire episode, from the hospital stay and medical supplies to the rehabilitation that follows. If the total costs remain within the target of the bundled payment contract, the hospital can keep the savings. On the other hand, if the services cost higher than the price agreed upon, the hospital has to pay Medicare the difference. It is expected that this arrangement will encourage standardized, cost-effective care decisions.

Medicare’s bundled payment model for joint replacement surgery has a vociferous critic – Dr. Tom Price, the president elect’s HHS nominee. Price has come down heavily on the CJR model, saying that Medicare had “exceeded its powers” in imposing such bundled payments, which he said took decisions out of the hands of doctors and patients.

However, the recent JAMA study, which is based on Medicare claims data from 2008 through mid-2015, contradicts this view. The researchers found that hospitals in the program saved an average of 8 percent, with some saving much more. They say that Medicare could save up to $2 billion annually if every hospital adopted the bundled payment model.

MedCity News reported that supporters of the program said it offered many benefits:

  • Enhances collaboration between surgeons, administrators and patients as hospitals can save money only if physicians are engaged in standardizing care
  • Enables orthopedic surgeons to find the best, most cost-effective implants
  • Allows surgeons to share in some of the cost savings enjoyed by the hospital
  • Encourages proactive communication between providers and patients
  • Lowers rehabilitation costs when bundles include care following patients’ hospital stay – those who did not need to stay in a nursing home or rehab center could be provided home health care or physical therapy

On December 20, CMS announced its intention to extend the mandatory bundled payments to treatments for heart attacks, bypass surgery and cardiac rehab beginning in July 2017.

If bundled payment programs are expanded, provider organizations that want to participate and remain competitive should begin preparing now. Partnering with a medical billing outsourcing company can help hospitals and physicians achieve maximum efficiency and the best possible outcomes in the new value-based compensation environment.