On July 25, 2016, the Centers for Medicare & Medicaid Services (CMS) announced a proposed rule that promises to deliver coordinated, high-quality care for Medicare beneficiaries. The proposed rule (effective July 1, 2017) establishes a mandatory bundled payment program for cardiac care and expands the existing hip and knee bundled payment initiative that launched earlier this year.

According to CMS, bundled payments for a single episode of care encourage care coordination to reduce complications and hospital readmissions. Preliminary results from the CMS Innovation Center, which designs and tests innovative payment and care delivery models, indicate that bundled payments for cardiac and orthopedic care have the potential to reduce costs while maintaining quality of care. However, opponents of the proposed rule—House Republicans and provider associations—are demanding more time to assess the possible detrimental effects of these models. Last month, a group of 179 House lawmakers accused CMS of exceeding its authority and, in turn, compromising patient care by mandating the new programs.

CMS Tests Bundled Payment Models for Better Quality at Lower Costs

Alternative payment systems—e.g., accountable care organizations (ACOs), advanced primary care medical homes, and bundled payment models—are the cornerstone of Medicare’s efforts to control medical spending while increasing the quality of patient care provided to Medicare beneficiaries. Since 2013, CMS has launched two voluntary bundled payment programs: the Bundled Payment for Care Improvement Initiative (BPCI; 2013) and the Oncology Care Model (OCM; 2016).

The BPCI tests four bundled payment models based on 48 episodes of care involving an inpatient hospital stay. Hospitals that provide care for less than the cost of the bundle qualify for a share in cost-savings based on historic “unbundled” costs. As of 2016, BPCI has 1448 participants, including 409 acute care hospitals, 700 skilled nursing facilities, 288 physician group practices, and 100 home health agencies.

The OCM targets physician practices providing chemotherapy for oncology patients. Participating physicians receive a per-beneficiary monthly payment and are eligible for additional performance-based compensation. Nearly 200 physician group practices and 17 payers are voluntarily participating in OCM.

Key Provisions of the Proposed Rule

As described in the proposed rule, CMS plans to expand bundled payments for hip and knee replacements under the Comprehensive Care for Joint Replacement (CJR) model, Medicare’s first mandatory bundled payment system. The rule also establishes the Cardiac Rehabilitation (CR) incentive payment model to encourage the post-hospitalization use of cardiac rehabilitation services. Unlike BPCI and OCM, the new programs are mandatory for hospitals and physicians in the assigned communities.

The CJR Model

According to CMS, hip and knee replacements are the most common inpatient surgery for Medicare beneficiaries. In 2014, Medicare paid more than $7 billion for approximately 400,000 procedures, with costs varying from $16,000 to $33,000 per episode. CMS launched CJR earlier this year to improve the quality and coordination of care for total hip and knee replacements from the initial hospitalization through recovery. The proposed rule expands CJR to cover surgeries repairing hip and femur fractures. The changes will go into effect for the model’s existing participants—700 hospitals in 63 communities—for the remainder of the five-year period.

CR Incentive Payment Model

In 2014, Medicare paid hospitals over $6 billion to cover cardiac arrest hospitalizations for 200,000 beneficiaries. Akin to hip and knee replacements, cardiac care payments vary as much as 50% for the same services. The new CR model tests the impact of providing an incentive payment to hospitals for beneficiaries who are hospitalized for a heart attack or coronary artery bypass graft surgery (CABG). The payment system is designed to increase the use of cardiac rehabilitation and intensive cardiac rehabilitation services in the 90-day care period post hospitalization to reduce complications and readmissions. CMS will test three bundles for five years: heart failure, CABG, and cardiac rehabilitation. Heart failure and CABG bundles will be mandatory in 98 communities, and cardiac rehabilitation bundles will be available in 45 markets.

Maintaining the Status Quo: Opponents to the Proposed Rule

Last month, a group of 178 House Republicans and one Democrat signed a letter asking CMS Administrators to “cease all current and future planned mandates” under the CMS Innovation Center. The letter indicates that the new initiatives may compromise patient care, as “patients are blindly being forced into high-risk, government-dictated reforms with unknown impacts.”

Citing a recent CMS report, the letter points out that bundled payment models “have not yet yielded noticeable savings.” While early results from the CMS report revealed that cardiovascular surgery episodes under bundled payment models did not show any savings, quality of care was preserved. The report also found that bundled payments for orthopedic surgery episodes showed a statistically significant savings of $864 per episode and higher quality scores during post-discharge in two mobility measures.

Republican lawmakers insist that large-scale demonstrations to reduce costs could have the opposite effect on quality of care. However, these critics are also likely responding to political pressure from provider groups who benefit from the status quo of fee-for-service (FFS) Medicare.

CMS leaders are confident that mandatory bundled payment models will create strong incentives for hospitals to deliver better care at a lower cost. Prior to the ACA, FFS payments accounted for nearly all reimbursements for Medicare’s 55 million beneficiaries. An estimated 30% of Medicare payments are now tied to alternative payment models—nearly a year ahead of the timeline set by Department of Health and Human Services (HHS). By implementing the proposed rule, CMS leaders hope to reach the Administration’s goal of tying 50% of Medicare payments to quality by 2018.