CMS Announces Bundled Payments for Care Improvement Initiative Awardees—Lessons for Post-Acute Care Providers
May 16, 2013

CMS Announces Bundled Payments for Care Improvement Initiative Awardees—Lessons for Post-Acute Care Providers

Jade Gong, Senior Vice President, Strategic Initiatives

Brian Fuller, Senior Consultant


Last week, the Centers for Medicare and Medicaid Services (CMS) announced the awardees for the Bundled Payments for Care Improvement (BPCI) initiative. Bundled payment is a model where providers receive a lump sum payment for an episode of care. Previously, bundled payment approaches have focused on hospitals and physicians. However, this initiative provided unprecedented opportunity and flexibility for post-acute providers to test bundled payment within their organizations via two different models:

  • Model 2, which included the inpatient hospitalization, physician services, and all care, including post-acute care and readmissions following discharge
  • Model 3, which included all services following discharge from an inpatient hospitalization, including all post-acute care, physician services, and readmissions

These new awardees provide insights on how post-acute providers can successfully engage in bundled payment models in round two, as well as bundled payment arrangements with other health care providers and payors.

Understanding the Bundling Initiative

CMS initially offered applicants the opportunity to pursue four different models of participation in bundled payment, including two models that included post-acute providers. All four models are summarized in Table 1. Two of these models were limited to the acute care hospital stay and associated physician services (Models 1 and 4) while the other two models included post-discharge services within post-acute care settings (Models 2 and 3). Applicants received extensive cost and utilization data from CMS to develop concrete, targeted care redesign interventions with specific pricing that became the basis of their proposals.

The Awardees

CMS announced this week that over 460 health care providers will participate in the four models of round one of the BPCIinitiative. Not surprisingly, Models 2 and 3, the models that included postacute care, represented three-fourths of the announced awards, illustrating strong acknowledgment by the participants of the potential to improve care and lower costs within post-acute care settings.The number of awards in each model are:

  • Model 1: Acute hospital stay only                                                 32
  • Model 2: Acute hospital stay and post-acute care                 193
  • Model 3: Post-acute care only                                                        166
  • Model 4: Acute hospital stay and readmissions                      76

Deep Dive into the Bundling Models for Post-Acute Care

CMS utilized an intentionally broad and open-ended application process to encourage new ideas and design concepts; however, in the end,refined the program design for providers participating in either Model 2 or Model 3 with certain specific requirements for participation, as shown in Table 2.

Table 2: Requirements for Participation in the BPCI Initiative

For Model 3, there were common aspects of the more than 166 awards representing 27 states across the U.S. Many on the list included multiple awards for different markets under the same parent company organization; however, more than one-third were local or regional providers, many of which are nonprofit organizations. This included providers who predominantly offer one post-acute setting in multiple geographic markets as well as those providers who offer multiple post-acute settings within a defined market. In almost all cases and regardless of the breadth of services offered, Model 3 organizations engaged additional health care providers to build their bundled payment network.

Remarkably, participants were bullish on the cost savings potential for multiple clinical conditions as more than half of the Model 3 initiatives will bear risk for all 48 clinical conditions offered by CMS and almost 90 percent took on three or more conditions. The most popular clinical episodes included orthopedic conditions, particularly joint replacements, followed by cardiac conditions such as congestive heart failure.

Why Become an Early Adopter of Bundled Payment

Based upon our experience working with clients in developing bundled payment applications and in reviewing round one applications for CMS, we have identified the main reasons for organizations to accept the risk and opportunity of entering round one of bundled payment:

  • Opportunity to access data and costs in order to intelligently redesign care across settings and develop a concrete, value-based strategy.
  • Ability to develop risk mitigation strategies for bundling approaches by understanding the source of costs across settings and identifying the risks.
  • Leverage to create meaningful partnerships with other providers built upon solid analysis and commitment to a model of care designed to achieve higher quality and lower costs.
  • Participation in a bundled payment is a stepping stone to clinical integration and accountable care, preparing the organization’s culture and strategy for payment reform regardless of the ultimate form it takes.
  • Bundled payment participation creates a catalyst within organizations that devotes the focus, planning, and resources necessary to begin moving towards value-based payment mechanisms.

The Next Wave

If successful, bundled payment is intended to achieve the goals to better coordinate care, reduce overall costs, and better manage a population of patients across a defined episode of care—the three defining goals of CMS’ Triple Aim. The momentum is building for bundled payment approaches and, in particular, those that involve post-acute care, as evidenced by this announcement as well as the launch of private payor bundling arrangements occurring throughout the country.

In the near future, providers should expect the start of the mandated National Pilot Program on Payment Bundling in the Affordable Care Act (ACA) along with the release of a second round of CMS bundled payment applications with new models to include chronic conditions. Interested providers should begin moving down the path of assessing their organizational readiness and using the results to develop a strategic action plan.

In the upcoming months, Health Dimensions Group (HDG) will release a series of papers exploring the details of bundled payment in greater depth. The HDG team has experience working with clients on bundled payment and is available to assist your staff and organization to pursue this new opportunity. Please contact our team for additional guidance on how your organization can create competitive advantage by positioning as a high-quality, low-cost provider with the ability to leverage the bundled payment opportunities in your market.


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