Medicare
Private Sector Initiatives to Bundle Hospital and Physician Payments for an Episode of Care Gao ID: GAO-11-126R January 31, 2011In recent years, we and other federal fiscal experts--including the Congressional Budget Office (CBO) and the Medicare Trustees--have noted the rise in Medicare spending and expressed concern that the program is unsustainable in its present form. Concerns about the rising cost of health care are particularly pressing in light of evidence that suggests that greater spending does not necessarily translate to better health outcomes or higher-quality care. Medicare's fee-for-service (FFS) payment system may contribute to spending growth because it rewards volume of services regardless of the appropriateness, cost, and quality of those services. Under FFS, a payment is made for each unit of service based on the expected costs of delivering that service. For example, Medicare makes multiple separate payments for the services associated with a complex medical procedure performed in a hospital. It pays the hospital for the initial admission and any related readmissions; each physician involved in the patient's care, such as the surgeon and the anesthesiologist; and the skilled nursing facility for any related care immediately after hospitalization. Payments made in isolation in this way may give providers little incentive to coordinate the provision of care or to control the volume of services; in fact, each admission and readmission increases revenue for hospitals, and each visit and procedure increases revenue for physicians. "Bundling," under which a single payment is made for a group of services related to an episode of care, may promote closer integration of health care providers and hold them jointly responsible for the cost and quality of services. An episode of care may refer to all services, including hospital, physician, and other services related to a health condition with a given diagnosis from a patient's first admission, including any readmissions, through the last encounter for the condition, including postacute services such as home health, skilled nursing facility, and rehabilitation. Bundled payment arrangements effectively hold providers collectively responsible financially for the health care they provide to a patient. As such, these arrangements seek to promote coordination among providers and the integration of health care delivery. To the extent that bundled payment arrangements encourage providers to become more efficient in the delivery of care, these arrangements can also benefit providers financially. Any reductions in unnecessary care that result from bundling can improve the quality of care. Some studies of bundled payments in the private sector suggest that for certain services and in certain settings, bundling may lower costs and improve efficiency. For example, one private sector pilot project conducted in the early 1990s looked at the impact of bundling hospital and physician payments for knee and shoulder arthroscopic surgery, including a 2-year warranty from the surgeon. This pilot resulted in a decrease in total costs to the payers. A more recent study of Geisinger Health System's bundled hospital and physician payments for cardiac bypass surgery procedures found that 30-day clinical outcomes improved. For example, there was a reported statistically significant 12 percent increase in patients discharged to their home. Financial outcomes were also reported to improve, including a 5 percent drop in hospital charges. Congress asked us to examine private sector initiatives to bundle payments for an episode of care. We examined (1) types of services for which private payers have bundled payments for an episode of care, (2) how private payers administer bundled payments, and (3) the views of national payers, physician specialty societies, and experts on the feasibility of more extensive use of bundled payments in Medicare.
The five largest national payers stated that they have routinely bundled payments for solid organ and bone marrow transplants for over 20 years, and a few had bundled payments for other services. The bundled payment for transplants generally included all hospital, physician, and ancillary services for the transplant episode, from evaluation through follow-up care. Two of the five national payers also have begun using bundled payments on a limited basis for other procedures. In 2009, one payer implemented bundled payments for bariatric surgery with providers in 22 states, and another payer implemented bundled payments for cardiac bypass surgery and other cardiac interventions in one hospital. All five national payers told us they generally signed a single contract with the hospital and physicians to bundle payments for transplants, and they processed bundled payments manually. The payers contracted with high-quality transplant centers that first met minimum volume and quality criteria established by national transplant organizations and were then willing to accept a competitive bundled payment rate. The payers typically signed a single contract, usually with large, urban teaching or tertiary hospitals and physicians who were either hospital employees or in hospital-affiliated practice plans. Payers paid the hospital, which then paid physicians and other providers. In addition, all five payers told us that both payers and providers processed claims for bundled payments manually because their claims systems were not designed to group hospital and physician claims related to an episode of care. Payers, representatives from physician specialty societies, and experts we interviewed stated that while bundled payments were feasible for Medicare, there were several obstacles to overcome. Among the factors noted that contributed to the feasibility of bundled payments in Medicare were that the ongoing Medicare bundled payment demonstration had increased providers' acceptance of bundled payments; and that bundled payments for transplants at the payers' centers of excellence resulted in savings--an important consideration in light of Medicare's financial challenges. Factors that could hinder wider use of bundled payments for Medicare included manual claims processing, which all five payers told us would be less viable for higher-volume services; that standard definitions for an episode of care do not exist; and that limiting provider choice under the selective contracting used for transplant networks may pose problems for Medicare FFS beneficiaries, who are used to a wide choice of providers since Medicare generally allows participation by all willing providers that meet certain standards.
GAO-11-126R, Medicare: Private Sector Initiatives to Bundle Hospital and Physician Payments for an Episode of Care
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GAO-11-126R:
United States Government Accountability Office:
Washington, DC 20548:
January 31, 2011:
The Honorable Dave Camp:
Chairman:
Committee on Ways and Means:
House of Representatives:
The Honorable Frank Pallone, Jr.
Ranking Member:
Subcommittee on Health:
Committee on Energy and Commerce:
House of Representatives:
The Honorable Pete Stark:
Ranking Member:
Subcommittee on Health:
Committee on Ways and Means:
House of Representatives:
The Honorable John Shimkus:
House of Representatives:
Subject: Medicare: Private Sector Initiatives to Bundle Hospital and
Physician Payments for an Episode of Care:
In recent years, we and other federal fiscal experts--including the
Congressional Budget Office (CBO) and the Medicare Trustees--have
noted the rise in Medicare spending and expressed concern that the
program is unsustainable in its present form.[Footnote 1] Concerns
about the rising cost of health care are particularly pressing in
light of evidence that suggests that greater spending does not
necessarily translate to better health outcomes or higher-quality
care. Medicare's fee-for-service (FFS) payment system may contribute
to spending growth because it rewards volume of services regardless of
the appropriateness, cost, and quality of those services. Under FFS, a
payment is made for each unit of service based on the expected costs
of delivering that service.[Footnote 2] For example, Medicare makes
multiple separate payments for the services associated with a complex
medical procedure performed in a hospital. It pays the hospital for
the initial admission and any related readmissions; each physician
involved in the patient's care, such as the surgeon and the
anesthesiologist; and the skilled nursing facility for any related
care immediately after hospitalization. Payments made in isolation in
this way may give providers little incentive to coordinate the
provision of care or to control the volume of services; in fact, each
admission and readmission increases revenue for hospitals, and each
visit and procedure increases revenue for physicians.
"Bundling," under which a single payment is made for a group of
services related to an episode of care,[Footnote 3] may promote closer
integration of health care providers and hold them jointly responsible
for the cost and quality of services. An episode of care may refer to
all services, including hospital, physician, and other services
related to a health condition with a given diagnosis from a patient's
first admission, including any readmissions, through the last
encounter for the condition, including postacute services such as home
health, skilled nursing facility, and rehabilitation. Bundled payment
arrangements effectively hold providers collectively responsible
financially for the health care they provide to a patient. As such,
these arrangements seek to promote coordination among providers and
the integration of health care delivery.[Footnote 4] To the extent
that bundled payment arrangements encourage providers to become more
efficient in the delivery of care, these arrangements can also benefit
providers financially. Any reductions in unnecessary care that result
from bundling can improve the quality of care.
Some studies of bundled payments in the private sector suggest that
for certain services and in certain settings, bundling may lower costs
and improve efficiency. For example, one private sector pilot project
conducted in the early 1990s looked at the impact of bundling hospital
and physician payments for knee and shoulder arthroscopic surgery,
including a 2-year warranty from the surgeon. This pilot resulted in a
decrease in total costs to the payers.[Footnote 5] A more recent study
of Geisinger Health System's bundled hospital and physician payments
for cardiac bypass surgery procedures found that 30-day clinical
outcomes improved. For example, there was a reported statistically
significant 12 percent increase in patients discharged to their home.
Financial outcomes were also reported to improve, including a 5
percent drop in hospital charges.[Footnote 6]
Medicare first explored the use of bundled payments almost 20 years
ago, implementing two demonstrations that lowered the cost of services
provided to beneficiaries.[Footnote 7] Most recently, in 2009, the 3-
year Acute Care Episode (ACE) Demonstration implemented bundled
payments for selected inpatient high-cost cardiac and orthopedic
surgery in four states in the Southwest. To improve the coordination,
quality, and efficiency of services provided to Medicare
beneficiaries, in the Patient Protection and Affordable Care Act
(PPACA), the Secretary of Health and Human Services (HHS) is required
to implement a national pilot program by January 1, 2013,[Footnote 8]
for integrating services provided to beneficiaries during an episode
of care. An episode of care may include inpatient, physician, and
related services provided prior to, during, and following an admission
to a hospital. The Secretary must develop payment methods that may
include bundled payments for episodes of care. Medicare provider
entities including a hospital, a physician group, a skilled nursing
facility, and a home health agency may apply for participation in this
pilot program subject to standards to be set by the Secretary. In
setting the standards, the Secretary must ensure adequate beneficiary
choice of providers under the pilot program.
You asked us to examine private sector initiatives to bundle payments
for an episode of care.[Footnote 9] We examined:
* types of services for which private payers have bundled payments for
an episode of care,
* how private payers administer bundled payments, and:
* the views of national payers, physician specialty societies, and
experts on the feasibility of more extensive use of bundled payments
in Medicare.
Scope and Methodology:
To describe types of services for which the private sector has bundled
payments and how the bundled payment arrangements are administered, we
interviewed the five largest national payers--Aetna, Cigna, Humana,
UnitedHealth Group, and Wellpoint--and reviewed relevant materials
provided to us by officials from these organizations.[Footnote 10] We
also interviewed representatives of medical professional societies
that had taken a public position on bundled payments, as well as
representatives of other organizations that were identified in the
literature as having experience with bundled payments to hear about
their experience and get their views about the feasibility of bundled
payments for Medicare.[Footnote 11] To learn about bundled payment
initiatives developed by the Centers for Medicare & Medicaid Services
(CMS)--the agency that administers the Medicare program--we
interviewed agency officials and reviewed relevant CMS policies. Our
findings are based on interviews with selected national payers and
physician groups, and therefore they cannot be generalized to all
payers and physicians.
We conducted this performance audit from March 2010 through December
2010 in accordance with generally accepted government auditing
standards. Those standards require that we plan and perform our work
to obtain sufficient, appropriate evidence to provide a reasonable
basis for our findings and conclusions based on our research
objectives. We believe that the information obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions
in this product.
Results in Brief:
The five largest national payers stated that they have routinely
bundled payments for solid organ and bone marrow transplants for over
20 years, and a few had bundled payments for other services. The
bundled payment for transplants generally included all hospital,
physician, and ancillary services for the transplant episode, from
evaluation through follow-up care. Two of the five national payers
also have begun using bundled payments on a limited basis for other
procedures. In 2009, one payer implemented bundled payments for
bariatric surgery with providers in 22 states, and another payer
implemented bundled payments for cardiac bypass surgery and other
cardiac interventions in one hospital.
All five national payers told us they generally signed a single
contract with the hospital and physicians to bundle payments for
transplants, and they processed bundled payments manually. The payers
contracted with high-quality transplant centers that first met minimum
volume and quality criteria established by national transplant
organizations and were then willing to accept a competitive bundled
payment rate. The payers typically signed a single contract, usually
with large, urban teaching or tertiary hospitals and physicians who
were either hospital employees or in hospital-affiliated practice
plans. Payers paid the hospital, which then paid physicians and other
providers. In addition, all five payers told us that both payers and
providers processed claims for bundled payments manually because their
claims systems were not designed to group hospital and physician
claims related to an episode of care.
Payers, representatives from physician specialty societies, and
experts we interviewed stated that while bundled payments were
feasible for Medicare, there were several obstacles to overcome. Among
the factors noted that contributed to the feasibility of bundled
payments in Medicare were that the ongoing Medicare bundled payment
demonstration had increased providers' acceptance of bundled payments;
and that bundled payments for transplants at the payers' centers of
excellence resulted in savings--an important consideration in light of
Medicare's financial challenges. Factors that could hinder wider use
of bundled payments for Medicare included manual claims processing,
which all five payers told us would be less viable for higher-volume
services; that standard definitions for an episode of care do not
exist; and that limiting provider choice under the selective
contracting used for transplant networks may pose problems for
Medicare FFS beneficiaries, who are used to a wide choice of providers
since Medicare generally allows participation by all willing providers
that meet certain standards.
In its written comments, HHS stated that the report provided useful
information for CMS as it takes steps to expand bundled payment
programs. CMS added that it has already begun to address some of the
challenges we noted, such as manual claims processing, in the ACE
demonstration for bundled payments.
Largest National Payers Bundled Payments for Transplants, and Some
Have Started Bundling Payments for Other Services in Specific
Locations:
The five largest national payers told us that bundling payments for
transplants is standard procedure and has been the industry norm for
more than two decades. The five payers bundled payments for solid
organ transplants--including heart, liver, kidney, and pancreas--and
for bone marrow transplants. The payers told us there were several
reasons they selected transplants for bundled payment arrangements.
Transplants are high-cost procedures, which increases the potential
for achieving substantial savings; they have clearly defined start and
end points, which is a necessity in defining an episode of care; and
they have well-established clinical protocols for care and well-
defined outcome measures.
The five national payers told us that the bundled payment for
transplants generally included all hospital, physician, and ancillary
services for all phases of the transplant episode: evaluation; organ
procurement; hospital admission for the procedure; readmissions; and
follow-up care, which varied from 30 to 365 days. The payers told us
that they typically did not adjust for the severity of the patient's
condition beyond the inherent severity adjustment included in the
Medicare diagnosis related group.[Footnote 12] Four of the five payers
also told us that they had established outlier provisions to limit the
financial risk to providers.[Footnote 13] The payers provided
additional per diem payments when outlier thresholds, which were based
on a limit of total days or a threshold of total charges for the
episode, were reached.
Two of the five national payers were moving toward expanding bundled
payments to additional procedures. For example, one payer told us that
in 2009 it had implemented bundled payments for bariatric surgery in
selected hospitals in 22 states. This payment included all hospital,
physician, and ancillary services: evaluation for surgery, hospital
admission, and follow-up care for 180 days after discharge. The payer
told us it had selected bariatric surgery for a bundled payment
arrangement for reasons similar to those for transplants: it is a high-
cost procedure with clearly defined start and end points, and well-
established clinical protocols for care. Another payer began using
bundled payment arrangements in 2009 for cardiac bypass surgery and
other cardiac interventions in one hospital. This payer told us that
the bundled payment included hospital, physician, and ancillary
services for the surgical procedure and follow-up care for 30 days
after discharge.
Four of the five payers told us that they were exploring bundled
payments for other high-cost services, including cardiac and
orthopedic surgery. Three payers told us that, as a first step in that
direction, they had developed a "centers of excellence" approach to
identify high-quality hospitals that provide these services. In this
approach, health plan members are encouraged to use hospitals that
meet volume, quality, and efficiency criteria specified by the payers.
The payers told us they are interested in developing bundled payments
for these additional services but certain implementation challenges
would need to first be considered.
National Payers Generally Contracted Jointly with Selected Hospitals
and Physicians for Transplants, and Processed Claims Manually:
All five national payers told us that they selected hospitals for
their transplant network on the basis of criteria including volume and
quality, experience, and availability of ancillary services. The
payers said that to identify hospitals to include in the transplant
network they first relied on minimum volume and quality criteria
endorsed by national transplant organizations like the United Network
for Organ Sharing (UNOS) and the Scientific Registry of Transplant
Recipients (SRTR).[Footnote 14] Payers told us that the data included
in these public registries on each hospital's transplant experience
are risk-adjusted, that is, differences in patient demographics and
severity of condition are considered so that fair comparisons can be
made across hospitals. Payers also told us that they used their own
additional criteria, such as evidence of an experienced transplant
team; availability of ancillary and 24-hour support services;
hospitals' quality assurance programs; and participation in clinical
data registries, such as UNOS and SRTR.[Footnote 15] The payers told
us that only about half or fewer transplant hospitals qualified for
their national transplant networks; these were typically large
teaching or tertiary hospitals located in urban areas. Payers examined
hospitals' volume and quality data annually.
After identifying hospitals that met volume and quality criteria, the
five payers said they usually signed a single contract with hospitals
and physicians, and that the hospitals and physicians determined how
the payment would be disbursed. The payers said they contracted with
hospitals that were willing to accept a competitive bundled payment
rate.[Footnote 16] They said that a single contract could be
negotiated because the physicians were either employees of the
hospitals or were organized into hospital-affiliated practice plans.
Payers generally made payments to the hospital in installments after
each phase of the transplant episode; the hospital then paid the
physicians. Payers did not typically get involved in decisions about
how payments were allocated among participating providers.
All five national payers said they had established financial
incentives for patients to use the hospitals in the transplant
network. Some payers reduced patients' copayments or coinsurance if
they used hospitals within the network. One payer covered only the
transplants performed at designated centers of excellence; if patients
chose hospitals outside the network, they would have to pay out of
pocket for the entire cost of the transplant. Because designated
centers of excellence could be far from a patient's home, payers also
usually helped pay travel expenses for patients and at least one
family member.[Footnote 17],[Footnote 18]
All five national payers told us that both payers and providers
processed claims for bundled payments manually, not with an automated
claims processing system, because automating the process would be
difficult. Payers said that their claims systems were not designed to
group hospital and physician claims related to an episode of care and
to make a bundled payment for these claims instead of paying them
individually. To facilitate manual processing of the claims for
bundled payments, payers had a dedicated claims unit that identified
and flagged all transplant-related claims as 'no-pay' to avoid paying
twice for them. Several payers told us that they required providers to
submit the claims for transplant services because payers needed to
capture all encounter data to record and track the types of services
being provided during the episode and determine how the bundled
payment compared to billed charges. Payers also reviewed the claims to
identify any potential quality problems such as stinting on care.
All five national payers told us that the case managers they hired
were key to ensuring the successful implementation of bundled
payments. Payers assigned a dedicated case manager, typically a
registered nurse experienced in transplant care, to patients
throughout the transplant episode to help them navigate through their
transplant experience. For example, the case manager explained the
patient's transplant benefits, how the transplant network was
structured, and the advantages of using a designated transplant
center. The case manager also helped patients select the most
appropriate center for their needs and medical condition, and
explained the expenses covered by the travel benefit, if applicable.
In addition, the payers told us that the case manager acted as the
liaison between the patient and providers, coordinated services, and
helped resolve any claims issues that arose.[Footnote 19]
National Payers, Physician Specialty Societies, and Experts Described
Factors Enhancing and Factors Impeding Medicare's Broader Use of
Bundled Payments:
Payers, representatives from physician specialty societies, and
experts we interviewed told us that more extensive use of bundled
payments in Medicare was feasible but that there were several
obstacles to overcome. They described factors such as providers'
growing acceptance of bundled payments that they believe enhance the
potential for more extensive use as well as factors that may hinder
it, including manual claims processing.
Providers' Growing Acceptance of Bundled Payments, Medicare's Market
Power, and the Potential for Savings Indicate Potential for More
Extensive Use of Bundled Payments:
Provider Acceptance of Bundled Payments and Increased Collaboration
between Hospitals and Physicians: Some respondents we interviewed told
us that providers were more accepting of bundled payments, and that
increased collaboration between some physicians and hospitals was
conducive to bundling. Some payers, researchers, and specialty
societies' representatives told us that the ongoing ACE demonstration
and the national pilot program in PPACA had increased providers'
receptiveness to bundled payments because providers believe that
bundled payments are likely to be implemented broadly in the future.
Several payers and specialty societies also noted that some hospitals
and physicians were collaborating to develop bundled payment
arrangements. For example, a representative from the ACC stated that
physicians at a major Ohio hospital had developed bundled payments for
selected high-cost cardiac surgery procedures and were in the process
of marketing the bundled payment arrangements to private payers.
Similarly, a representative from AAOS told us that orthopedic surgeons
at a hospital in southern California had collaborated with the
hospital to develop bundled payment arrangements for certain high-cost
orthopedic surgeries, which had been successfully implemented for a
large employer group.
Medicare's Market Power: Respondents mentioned Medicare's size as a
plus in facilitating bundled payments. Several payers and some
researchers and specialty society representatives told us that
Medicare's size enables it to effect change, such as facilitating
provider integration and encouraging provider investment in
infrastructure to manage bundled payments. As one payer noted,
Medicare alone can represent over half of a hospital's business, while
all private payers combined would represent less than one-third, and
any single payer a much smaller share. As such, providers may be more
willing to make changes to support bundled payments for Medicare than
for any single private payer. Respondents also noted that hospitals
may be eager to contract in order to boost their volume, particularly
if CMS contracted selectively with only high-volume, established
centers.
Potential for Savings: Interview respondents noted that bundled
payments, coupled with their selective contracting approach, have the
potential to produce savings--an important consideration in view of
the financial challenges facing Medicare. Most of the five national
payers stated that bundled payments for transplants at their centers
of excellence resulted in savings and efficiencies. For example, one
payer noted an average 4 percent reduction in total costs for
transplants performed at its designated centers of excellence compared
to a 15 percent increase at nondesignated centers, and several payers
noted efficiencies such as reductions in total length of stay. Some
specialty societies told us that there is potential for significant
reductions in hospital costs--which is where most of the costs are
concentrated--if bundled payment arrangements are used for
cardiovascular care.[Footnote 20] In addition, a representative from
one hospital in the Medicare ACE demonstration reported a 10 percent
reduction in costs for orthopedic procedures stemming largely from the
purchase of lower-priced medical devices such as orthopedic implants.
This representative stated that the hospital and orthopedic surgeons
were looking for ways to streamline their costs and improve their
efficiency to maximize their potential for success under the bundled
payment.
Claims Processing System Limitations, Current Degree of Provider
Integration, and Ongoing Management Requirements among Factors
Impeding Medicare's Broader Use of Bundled Payments:
Manual Claims Processing: All five national payers told us that manual
claims processing would represent a significant challenge for any
payer, including Medicare, particularly for high-volume services. The
payers told us that automated claims processing systems do not exist.
Payers have found it difficult to group hospital and physician claims
related to an episode of care. The five payers stressed that the
reason manual claims processing has worked for transplants is that
transplants are relatively low volume. If bundled payments are used
more widely and for higher-volume services, manual claims processing
would be less viable for payers, including Medicare, and providers.
Provider Integration: Most of the respondents told us that it was
difficult to establish a single contract for bundled payments with
hospitals and physicians. Most of the five national payers, specialty
societies, and researchers told us that successful implementation of
bundled payments requires that a single entity, composed of the
hospital and its physicians, contract with payers to receive and
distribute the bundled payment.[Footnote 21] Large tertiary or
teaching hospitals likely have physicians who are either employees or
in practice plans affiliated with the hospital, but respondents told
us that most other physicians practice alone or in small groups making
it more difficult to involve these physicians in bundled payment
arrangements. One payer also noted that generally hospitals are not
affiliated with the full range of postacute care providers such as
rehabilitation, home health, and skilled nursing facilities and may be
unwilling to accept risk in the bundled payment for care they do not
provide.
Standard Definition for Episode of Care: Respondents told us that
standard definitions of an episode of care do not exist for the types
of services that lend themselves to a bundled payment approach, and
payers and providers are looking to Medicare to develop such
definitions.[Footnote 22] All five national payers, the specialty
societies, and some researchers we interviewed noted that bundled
payments may not work well for all conditions because the services
that make up an episode of care must be unambiguously defined. The
five payers told us that one reason bundled payments have not been
implemented more widely for other services is because the episode of
care and the start and end points cannot be as clearly defined as they
are for transplants. When patients have comorbidities, episodes may
overlap, making it difficult to distinguish services that should be
included in one bundle from those to be included in another. Some
payers noted that providers have to tailor their systems to each
payer's definition of an episode, which makes them reluctant to take
on bundled payments, but if Medicare developed standard definitions,
payers would adopt them.
Case Management: The five national payers told us that the case
managers they used to help patients navigate the transplant process
and resolve any claims issues were essential for bundled payment
arrangements, and that Medicare does not have case managers. They said
that Medicare would need a similar case management function to
implement bundled payments successfully.
Public Data Registries: Some respondents we interviewed told us that
reliable, publicly available data on the quality of transplants that
help them identify high-quality providers do not exist for other types
of cases but that Medicare could facilitate the development of these
data sources. All payers told us that they relied on public patient
registries developed by specialty societies or other organizations to
identify high-quality transplant hospitals. Since the data are risk
adjusted, it is possible to compare outcomes across hospitals.
Specialty societies stressed that Medicare should rely on their data
registries, where they exist, rather than Medicare claims data for
risk adjustment. For example, representatives from the STS told us
that Medicare should use their registry of cardiac bypass patients
rather than claims data to develop risk adjustment for bundled
payments because their registry is a comprehensive database, started
in 1989, that includes data from more than 90 percent of cardiac
surgery programs nationwide. The clinical data are collected from
patient charts and include information on patient severity,
complications, and mortality. These and representatives from other
specialty societies believed that Medicare should facilitate the
development of registries where they do not yet exist and require
physicians to participate in existing registries.[Footnote 23] For
example, a representative from the ACC stated that all physicians now
participate in the registry they have developed on patients with
cardiac defibrillators because Medicare will not pay physicians who do
not participate in the registry.
Benefit Structure: Some national payers and researchers we interviewed
told us that Medicare's benefit structure and program characteristics
may present challenges because a bundled payment is made up of both
hospital and physician services, but the Medicare program makes
payments separately for these services and has different deductibles
and copayments for each. A Medicare bundled payment may therefore be
more complicated for HHS to administer and track. Some payers told us
that the financial incentives they offered-such as lower copayments
and deductibles, and travel benefits--to encourage use of centers of
excellence would be more difficult for Medicare to offer.
Provider Choice: Some payers we interviewed also told us that their
selective contracting approach may be problematic for Medicare, since
Medicare generally is required by law to allow all willing providers
that meet certain requirements and standards to participate in the
program.[Footnote 24],[Footnote 25] Payers told us that for bundled
payments they contracted with only the top-tier hospitals based on
volume and outcome data, but some payers and researchers said that
'leakage' of bundled payment services to noncontract providers,
particularly for follow-up care, could occur in a FFS environment
where beneficiaries are used to a choice of providers.[Footnote 26]
Agency Comments:
We obtained written comments from the Department of Health and Human
Services (HHS) which are reprinted in enclosure 1. In its written
comments HHS stated that the report provided useful information for
CMS as it takes steps to expand bundled payment programs. While CMS
agreed with the report's finding that manual claims processing is a
factor that hinders Medicare's ability to expand bundled payment
programs, it stated that it had worked with the Medicare
Administrative Contractor (MAC) for the ACE demonstration to develop
an electronic bundled payment claims processing system within the
MAC's existing operation and plans to transfer this processing program
to other MACs as it expands bundled payment programs. CMS added that
electronic processing was possible for existing bundled payment
programs implemented under Medicare because fixed payments, with
identical Part A deductible and Part B coinsurance amounts, were set
for each patient per hospital per diagnosis-related group. This also
helped overcome the challenges presented by Medicare's benefit
structure. In addition, CMS stated that its evaluation of prior
bundled payment initiatives indicated that bundled payment programs
themselves do not automatically result in increased volume to
hospitals because patients tend to use hospitals where their
physicians have privileges. However, as we stated in the report,
respondents told us that bundled payments coupled with a selective
contracting approach could increase volume for participating hospitals.
As agreed with your offices, unless you publicly announce the contents
of this report earlier, we plan no further distribution until 30 days
from the date of the report. At that time we will send copies of the
report to the Administrator of CMS and relevant congressional
committees. This report also will be available at no charge on the GAO
Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions about this report, please
contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. GAO staff who made major
contributions to this report are listed in enclosure II.
Signed by:
James C. Cosgrove:
Director, Health Care:
Enclosures - 2:
[End of section]
Enclosure I: Comments from Department of Health and Human Services:
Department Of Health & Human Services:
Office Of The Secretary:
Assistant Secretary for Legislation:
Washington, DC 20201:
January 14, 2011:
James Cosgrove:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street N.W.
Washington, DC 20548:
Dear Mr. Cosgrove:
Attached are comments on the U.S. Government Accountability Office's
(GAO) draft correspondence entitled, "Medicare: Private Sector
Initiatives to Bundle Hospital and Physician Payments for an Episode
of Care" (GAO-11-126R).
The Department appreciates the opportunity to review this
correspondence before its publication.
Sincerely,
Signed by:
Jim R. Esquea:
Assistant Secretary for Legislation:
Attachment:
[End of letter]
General Comments Of The Department Of Health And Human Services (HHS)
On The Government Accountability Office's (GAO) Draft Correspondence
Entitled, "Medicare: Private Sector Initiatives To Bundle Hospital And
Physician Payments For An Episode Of Care" (GAO-11-126R):
The Department appreciates the opportunity to review and comment on
this draft correspondence. This correspondence provides a summary of
findings from private sector bundling initiatives that the Centers for
Medicare and Medicaid Services (CMS) will find useful as we engage in
efforts to expand our bundled payment programs.
CMS agrees with the GAO finding that processing claims manually is one
of several factors that hinder Medicare's ability to conduct expansive
bundled payment programs. During the initial Medicare bundled payment
demonstrations for corollary artery bypass grafts and cataract
procedures, we realized that continuing to process claims by hand
would preclude a widespread application of the concept. A major goal
of the current Acute Care Episode (ACE) Demonstration has been to
develop an electronic bundled claims processing system that could be
incorporated into the existing Medicare system. For that very reason,
we restricted the solicitation of ACE applicants to the four States
serviced by the Jurisdiction 4 Medicare Administrative Contractor
(MAC), worked closely with that one MAC to develop an electronic
bundled payment claims processing system within their existing
operation, and continue to cooperate with them to refine the process.
We then plan to transfer these electronic claims processing programs
to other MACs as we expand bundled payment programs.
In reference to the statement in the report that "...hospitals may be
willing to contract (a bundled payment with Medicare) in order to
boost their volume, particularly if Medicare contracted with only high-
volume, established centers," we would like to note that the
evaluation of prior CMS bundled payment initiatives indicated that
bundled payment programs, by themselves, did not automatically lead to
increased volume from expanded market share for program participants.
Also, to date, shared savings payments to beneficiaries under the ACE
Demonstration have not led to significant volume increases for program
participants. The fact remains that patients tend to go where their
physicians advise them. and patients tend to choose hospitals where
their physicians have admitting and practicing privileges, regardless
of incentives available under bundled payment programs. However, as
noted in the report, bundled payment program participants still have
significant opportunities to implement efficiencies and increase their
own savings.
In the report, it was stated that "Medicare's benefit structure...may
present challenges because a bundled payment is made up of both
hospital and physician services, but the Medicare program makes
payments separately for these services and has different deductibles
and copayments for each." Although this statement is true of Medicare
in general, we have addressed the challenges noted in the report for
purposes of the bundled payment demonstration programs already
implemented under Medicare. For those programs, the bundled payment is
a fixed amount per hospital per diagnosis related group from which
both the Part A deductible and the Part B coinsurance are deducted.
The Part A deductible is a fixed amount while the Part B coinsurance
is 20 percent of the designated Part B portion of the set bundled
payment. Thus, the deductible and coinsurance are the same for every
patient served in the particular hospital in the particular bundled
payment episode, enabling the MAC to incorporate the processing of
these payments into their electronic claims processing system. We
would also like to note that bundled payment initiatives under
Medicare are largely invisible to Medicare beneficiaries. While
participating sites must meet specific program requirements including
quality monitoring, they are not designated as centers of excellence.
Fee-for-service beneficiaries remain free to choose any provider they
wish regardless of whether the provider is participating in a bundled
payment initiative.
We look forward to expanding the application of the bundled payment
concept within the Medicare program. An upcoming challenge will be the
incorporation of post-acute services into the bundle. Post-acute
services are an area where accountable care organizations with
established relationships among various types of providers may play a
key role.
We would like to thank the GAO for all of its efforts and for their
valuable insights provided in this report.
[End of section]
GAO Contact and Staff Acknowledgments:
GAO Contact:
James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov:
Acknowledgments:
In addition to the contact named above, Phyllis Thorburn, Assistant
Director; Iola D'Souza; Ann Tynan; and Elizabeth T. Morrison made key
contributions to this report.
[End of section]
Footnotes:
[1] GAO, The Federal Government's Long-Term Fiscal Outlook: January
2010 Update, [hyperlink, http://www.gao.gov/products/GAO-10-468SP]
(Washington, D.C.: Mar. 2, 2010); CBO, Budget Options, Volume 1,
Health Care (Washington, D.C.: December 2008); and The Boards of
Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds, 2010 Annual Report of the Boards of
Trustees of the Federal Hospital Insurance and Federal Supplementary
Medical Insurance Trust Funds (Washington, D.C.: Aug. 5, 2010).
[2] In most instances, the unit of service is narrowly defined, such
as a single office visit or a single test. However, in some instances,
Medicare provides a single payment for multiple services furnished by
a provider. For example, the hospital outpatient fee schedule includes
payment for a primary service as well as other integral services and
ancillary items related to that service, such as intraoperative
services and imaging supervision/interpretation.
[3] For purposes of this report, the term bundled payment refers to
payment for services delivered by multiple providers for an episode of
care that goes beyond a single day. Other types of bundled payments
may exist, including a single payment for multiple services delivered
by a physician to a patient on the same day.
[4] The Commonwealth Fund Commission on a High Performance Health
System, The Path to a High Performance U.S. Health System: A 2020
Vision and the Policies to Pave the Way; and Robert E. Mechanic and
Stuart A. Altman, "Payment Reform Options: Episode Payment Is a Good
Place to Start," Health Affairs 28, 2, Web Exclusive (Jan. 27, 2009),
[hyperlink,
http://content.healthaffairs.org/cgi/content/abstract/28/2/w262].
[5] Lanny L. Johnson and Ruth L. Becker, "An Alternative Health-Care
Reimbursement System--Application of Arthroscopy and Financial
Warranty: Results of a 2-Year Pilot Study," Arthroscopy 10, 4 (1994):
462-470.
[6] Other outcomes also improved although these improvements were not
statistically significant: readmissions dropped 9 percent and in-
hospital mortality rates dropped by 100 percent. See Alfred S. Casale
et al., "Proven Care: A Provider-Driven Pay-for-Performance Program
for Acute Episodic Cardiac Surgical Care," Annals of Surgery 246, 4
(October 2007): 613-623.
[7] The Medicare Participating Heart Bypass Center demonstration,
which ran from 1991 to 1996 in seven sites nationwide, implemented
bundled hospital and physician payments for cardiac bypass graft
surgery as well as all related readmissions to the hospital. The
Medicare Cataract Surgery Alternative Payment Demonstration, which ran
from 1993 to 1996 in three states, implemented bundled payments for
outpatient cataract surgery procedures, including all follow-up care
for 120 days after surgery.
[8] Pub. L. No. 111-148, §§ 3023, 10308, 124 Stat. 119, 399-403, 941-
942 (2010).
[9] You also asked us to explore options to ensure that the physician
fee schedule appropriately reflects efficiencies occurring across all
types of services that are commonly furnished together. We examined
efforts by the Centers for Medicare & Medicaid Services (CMS) to set
appropriate fees, and additional opportunities for it to avoid
excessive payments, when services are furnished together on the same
day, in GAO, Medicare Physician Payments: Fees Could Better Reflect
Efficiencies Achieved When Services Are Provided Together, [hyperlink,
http://www.gao.gov/products/GAO-09-647] (Washington, D.C.: July 31,
2009).
[10] Our preliminary research with local payers in several states
showed that while efforts were under way to develop bundled payments
in several markets, local payers had not implemented them yet. We
therefore limited our study to bundled payment initiatives by the five
largest national payers.
[11] The medical professional societies included the American College
of Cardiology (ACC), American Academy of Orthopedic Surgeons (AAOS),
and the Society of Thoracic Surgeons (STS). The other organizations
included the Center for Studying Health System Change; the
Commonwealth Fund; Health Care Incentives Improvement Institute, a
nonprofit organization that developed a bundled payment model known as
the Prometheus Payment for selected services; the Integrated
Healthcare Association in California (IHA), a nonprofit, statewide
multistakeholder group that was in the process of developing bundled
payments for selected surgical procedures; the Rand Corporation; and
the Urban Institute.
[12] Inpatient admission cases are classified into relatively
homogeneous categories, called Medicare severity diagnosis-related
groups (MS-DRG), that are based on a patient's diagnoses and treatment
procedures, and may also take into account the severity of the
condition. For example, MS-DRG 1 is a heart transplant with major
comorbidities and complications, and MS-DRG 2 represents a heart
transplant without major comorbidities or complications.
[13] The payer that did not establish outlier provisions included in
its bundled payment 30 days of follow-up care after the transplant
compared with longer periods for the four other payers.
[14] UNOS is a private, nonprofit organization that manages the
nation's organ transplant system under contract with the federal
government. UNOS maintains the database that contains all organ
transplant data for every transplant event that occurs in the United
States. The UNOS database contains current and historical data for
individual transplant centers, such as annual transplant volume by
organ. The SRTR is a national database of organ transplantation
statistics developed by a nonprofit research organization to support
ongoing evaluation of the scientific and clinical status of the
continuum of transplant activity from organ donation and wait list
candidates to transplant recipients and survival statistics.
[15] A clinical data registry is a data warehouse used to collect
information about patient demographics and clinical outcomes. In this
correspondence, we refer to clinical data registries as registries
that collect performance data on hospital-level performance for
procedures such as transplants, cardiac interventions, and orthopedic
surgeries.
[16] These hospitals may be willing to accept lower payments because
they are assured of higher volume with a limited network of providers.
[17] Travel benefits had to be authorized by the employers with whom
the payers contracted.
[18] For example, one payer's travel benefit included up to $10,000 if
the transplant center was at least 60 miles from the patient's home.
The benefit covered expenses such as transportation costs, housing
assistance for visits or hospital admissions, and meals.
[19] Hospitals may also employ transplant case managers; however,
these managers are only able to coordinate care once the patient is
assigned to their hospital. They would not be able to explain
patients' transplant benefit coverage or help patients choose a
transplant center.
[20] It has been noted that physicians also may provide potentially
unnecessary services and that bundled payment arrangements help reduce
such services.
[21] Notably, for the Medicare ACE demonstration, CMS limited
potential applicants to physician-hospital organizations, with at
least one physician group and at least one hospital that routinely
provide at least one of the two main procedures included in the
demonstration.
[22] Under PPACA, as part of the Physician Feedback Program, the
Secretary must provide reports to physicians that compare their
patterns of resource use to their peers beginning in January 2012. For
purposes of these reports, the Secretary must develop an episode
grouper that combines separate but clinically related items and
services into an episode of care for individual patients, as
appropriate. See Pub. L. No. 111-148, § 3003, 124 Stat. 119, 366-368
(2010).
[23] For the Medicare ACE demonstration, applicants that participated
in clinical improvement programs or registries were given preference.
[24] 42 U.S.C. §1395cc.
[25] For example, in March 2007, CMS issued standards that transplant
hospitals would need to meet to participate in Medicare. Among other
criteria, the standards included minimum volume and outcomes, based in
part on standards from UNOS and the SRTR.
[26] Although participation in Medicare's transplant network is
limited to certain hospitals that meet its minimum standards, HHS has
not bundled Medicare payments for hospital and physician services for
the entire transplant episode at these centers as the national payers
have done. Thus, the issue of 'leakage' is not currently as critical
for the Medicare program since Medicare beneficiaries are not required
to obtain all their follow-up care at selected centers.
[End of section]
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