Contracting for Bundled Payment: An Introduction for Practitioners

August 2013
Topics: Payment Integrity, Improper Payments
The purpose of Contracting for Bundled Payment (BP) is to help provider organizations contract with one another so they can participate in BP programs with the Centers for Medicare & Medicaid Services (CMS) or potentially other payers.

This introduction gives an overview of Contracting for Bundled Payment, which is one of a series of CMS-authorized documents on certain key topics essential to preparation for BP. The document focuses primarily on methods for defining contract contents unique to BP, such as those that flow from plans for care redesign, quality and performance measurement, data sharing requirements, and gain sharing agreements. Additional contract elements, such as dispute resolution or unwinding clauses, are essential, but not specific to BP. A competent contracting attorney may guide the construction of these clauses.

In the United States, concurrent pursuit of reduced healthcare costs and improved healthcare quality has sparked a number of activities. Some involve delivery system reorganization, such as accountable care organizations (ACO) or patient-centered medical homes, to help coordinate health services or emphasize primary care services and prevention. These models as well as others involve care redesign and are grounded in evidence-based medicine or best practices. They all focus on some aspect of modifying payment systems to incentivize desired provider practices, such as Pay for Performance, or bundling healthcare services, which is our area of focus.

A bundled payment provides a single, predetermined amount of money for treatment by one or more providers during an entire episode of care. (An episode of care is the treatment of a specific medical condition during a set period of time.) BP offers many advantages over the current fee-for- service payment model, which compensates providers for individual services. Linked appropriately to outcome and other quality measures, a lump payment makes the entire treatment team more accountable for an episode's cost, quality, and outcome, and therefore aligns financial incentives for hospitals and physicians, who currently operate under different financial pressures.

Increasing Incentives to Reduce Waste and Improve Care

BP also provides incentives to reduce waste and care defects through better coordination and consideration of financial ramifications of individual care decisions. It offers the opportunity for providers to share in the savings obtained from eliminating duplication of services and improving care coordination, and can drive care delivery changes and ensure that successful organizations are rewarded commensurately. BP is distinct from the ACO, which employs a shared savings strategy as well, but generally targets care for a specific population rather than a set of diagnosis groups.

The Centers for Medicare & Medicaid Services has been exploring the use of BP through programs such as the Acute Care Episode (ACE) demonstration and the Bundled Payments for Care Improvement (BPCI). Efforts like the BPCI and ACE encourage communication and collaboration among different providers to achieve better patient care, eliminate duplicative or unnecessary treatment, and achieve savings for the Medicare program, to the benefit of all parties involved.

Participation in BP will likely require new understandings between different types of health providers and certain non-providers, reflecting a shared commitment to care redesign and promoting the dual goals of improved quality and decreased cost. These new understandings may require fresh contractual arrangements that articulate parties' roles and responsibilities as they work toward shared goals. Depending on the focus of a particular bundle, contracts could involve a range of providers, e.g., acute care hospitals, health systems, post-acute care providers (such as skilled nursing facilities and home health agencies), physician hospital organizations, physician group practices, and other care providers.

Download the full Contracting for Bundled Payment paper.

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