OpenPlacement Blog

Expanding Bundled Payments: CMS Proposes New Bundled Payments Rule


Acute care hospitals in certain selected geographic areas will participate in retrospective episode payment models targeting care for medicare fee-for-service beneficiaries receiving services during acute myocardial infarction, coronary artery bypass graft, and surgical hip/femur fracture treatment episodes. All related care within 90 days of hospital discharge will be included in the episode of care. [3]

Earlier this year, the Centers for Medicare & Medicaid Services implemented the Comprehensive Care for Joint Replacement (CJR) bundled payment model in 67 metropolitan areas in the U.S. This mandatory program, aimed at improving the quality and efficiency of care for Medicare beneficiaries, was previously restricted to hip and knee replacement procedures. However, on July 25th, 2016, CMS announced an expansion to the bundled payments system. Hospitals currently participating in the CJR model will be required to bundle payments for hip and femur fractures, and the bundled payment program will be introduced into 98 new randomly selected hospitals in U.S. metropolitan areas. These 98 hospitals will be required to participate in a bundled payment system for heart attacks and bypass surgeries.


In a bundled payment system CMS calculates a target price for a certain procedure using statistical data based on both the individual hospital and their regional competitors’ historical performance. In the CJR model this applies to hip and knee replacements. Under the proposed expanded bundled payments rule, this will apply to hip and femur fractures, heart attacks, and bypass surgeries. CMS will still pay providers on a fee-for-service basis, but will then compare the total cost of the procedure to the target price. Hospitals that come in under the target amount set by CMS will be able to keep the difference. Hospitals that exceed the target amount will be responsible for paying the extra cost.

It is important to note that the target price set by CMS will include all care within the episode of care which is not confined only to the time a patient spends in the hospital. The episode of care extends 90 days beyond hospital discharge making hospitals responsible for any relapses, readmissions, or complications that occur during that span of time. CMS hopes to improve patient transition to post-acute care (PAC) and “create incentives for the implementation and coordination of care redesign between participants and other providers and suppliers such as physicians and post-acute care providers[3]“.


Providers have expressed concern with both the timing and conditions included in the new expanded system. CMS proposes to implement the new rule in July 2017, leaving chosen hospitals little time to prepare. As Joanna Hiatt Kim, V.P. for payment policy at the American Hospital Association, said “[i]nstitutional infrastructure and relationships, especially with post-acute care providers, are viewed as essential to success in a bundled system, but they take time to build []. It's a lot of human resources, human capital, coordination inside the hospital that makes this happen”[5].

In response, CMS “proposed implementing the program in phases to allow hospitals to adapt to the new model and establish processes to support it. Downside risk is not added in until the second quarter of the second performance year, beginning April 2018. [After this date], downside risk is capped at 5 percent. This cap increases to 10 percent in the third performance year, and then will phase up to a maximum of 20 percent in the fourth and fifth performance years. Potential gains are also phased in. In the first two performance years, hospitals are able to earn a maximum bonus of 5 percent. These potential gains then grow in step with downside risk, up to 20 percent in performance years 4 and 5.”[4] This essentially guarantees chosen hospitals two years to implement new systems and work out any issues that they may find.

Another concern is the choice of conditions included in the new expanded bundled payment system. Historically, bundled payments in the CJR model were restricted to hip and knee replacements-generally uncomplicated procedures. However, with the introduction of hip and femur fractures, as well as heart attacks and bypass surgeries, the issue of setting a target price becomes more complicated. “Patients with hip fractures have a five- to eight-fold increase in mortality risk in the three months afterward, while those who have heart attacks are at increased risk for another”[4]. From the beginning of care when the patient comes through the ER until their post-op recovery, it is not unusual for cardiac patients as well as hip and femur fracture patients to have unforeseen complications. This is often complicated by the fact that patients with these conditions often suffer comorbidities, introducing a lot of uncertainty into how to calculate a target price for these procedures. However, CMS has assured providers that they will be taking potential complications into account when setting a target price.


“Some providers are embracing the proposal as an opportunity to tackle these complex challenges because it could lead to better outcomes for patients—and because they see Medicare and the industry in general moving in earnest toward value-based payment and not turning back”[5]. Whether or not a hospital has been chosen to participate in the new bundled-payment systems, hospital leadership may want to prepare for bundled-payments programs in the future. By being proactive and bridging the gap between acute care and post-acute care, hospitals can start forging the relationships that will be necessary for better communication and smoother transitions for patients. CMS is accepting comments from now until October 3, 2016 on its bundled-payments proposal. See the proposed rule in full and how to submit comments here: Medicare Program: Advancing Care Coordination Through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model.

[1]Comprehensive Care for Joint Replacement Model. (2016, May 06). Retrieved June 12, 2016, from
[2]Hand, L. (2016, August 5). CMS Bundled-Payment Program for MI, CABG Receives Praise, Scrutiny From Cardiologists, Surgeons. Balitimore, MD: Medscape.
[3]Medicare Program: Advancing Care Coordination Through Episode Payment Models (EPMs); Cardiac Rehabilitation Incentive Payment Model; and Changes to the Comprehensive Care for Joint Replacement Model. (2016, August 2).
[4]Rappleye, E. (2016, July 25). 10 things to know about CMS' new mandatory cardiac bundle. Becker's Hospital CFO. ASC COMMUNICATIONS 2016.
[5]Whitman, E. (2016, July 30). Bundled-payment expansion brings providers more risk—and opportunity. Modern Healthcare.