Episode Payment Models – 10 Things You Should Know

In the latest move to shift Medicare reimbursements to at-risk, quality-focused payment models, the Department of Health & Human Services (HHS) proposed new episode-based bundles, which are scheduled to launch in 2017. Here are the top ten things you should know:

  • The proposed payment models will cover heart attack, bypass surgery, and hip/femur fracture episodes
  • As with existing payment models, hospitals will be accountable for the cost and quality of a covered episode of care from the point of admission through 90 days after discharge
  • Participating hospitals will receive target prices for each MS-DRG included under the model. Throughout the year, hospitals will be reimbursed based on the existing fee-for-service approach. At the end of the model performance year, actual spend will be compared to the target episode price. Hospitals that spend less than the total target price will be paid any savings; those who spend more than the target price will be required to repay Medicare
  • Target prices are set yearly by the Centers for Medicare & Medicaid Services (CMS) and are based on historical cost data for the covered episodes along with adjustments based on complexity
  • The model rewards hospitals that deliver high-quality care by applying a quality-adjusted percentage discount that ranges from 1.5 to 3%. The lowest discount percentage will be applied to the hospitals that provide the highest quality care
  • The implementation includes a phased approach segmented by risk (possible repayments) and gains (payments made by Medicare to hospitals)
  • While the model is slotted to launch in July 2017, hospitals will not have to make repayments until the last three quarters of the 2018 performance year. Gains will be paid out starting performance year one
  • The new cardiac bundles will be rolled out to hospitals in 98 randomly-selected metropolitan statistical areas (MSAs)
  • The hip and femur fracture surgery models build upon the existing Comprehensive Care for Joint Replacement (CJR) model and will be tested in the same 67 MSAs currently included in the CJR program
  • CMS will evaluate model performance by measuring outcomes and patient experience including: hospital readmissions, emergency room visits, the care deferred beyond the 90-day post-hospital discharge period, HCAHPS satisfaction and experience measures, and patient assessments in home health and skilled nursing facility settings

The following is an example provided by CMS* to illustrate how the new payment model will work for coronary bypass surgery episodes in model years four and five were the average cost for an episode of care is $50,000:

"Hospital A is performing at the highest overall level on quality measures and its discount rate is 1.5 percent for the episode. As a result, its quality-adjusted target price for bypass surgery is $49,250 (or $50,000 minus the discount of $750). By taking measures to avoid readmissions and other unnecessary costs, Hospital A is able to reduce average total hospitalization and related 90-day post-discharge costs for bypass surgery patients to $48,000. Hospital A would be paid average savings of $1,250 per patient.

Hospital B in the same region also reduces its average costs to $48,000 per patient. However, it achieves only acceptable overall performance on quality measures. Its discount rate is 3 percent and its quality-adjusted target price is $48,500 (or $50,000 minus the discount of $1,500). Hospital B would be paid average savings of only $500 per patient.

For additional details and to learn more, please visit the CMS Episode Payment Models: General Information page located here.

*Episode Payment Models. General Information. Centers for Medicare & Medicaid Services; Last updated on: 07/29/2016.

- By Jvion Health