Bundled Payments Cost Medicare Nearly $300 Million

A new report on the Bundled Payments for Care Improvement (BPCI) program found that the initiative has actually resulted in Medicare losses, counter to its aims.

Under BPCI, providers agree to split a set reimbursement amount for a patient’s single episode of care, with the overall goal of reducing costs across the spectrum. But in a report released Tuesday, the health care consulting firm the Lewin Group found that the Model 2 track — the largest in the BPCI program in terms of episodes — cost Medicare $202.1 million between the fourth quarters of 2013 and 2016, or $268 per event. The Model 3 initiative resulted in an $85.2 million hit during that span, or $921 per episode.

While total episode payments declined, the BPCI program lost money because of reconciliation payments to providers that met certain performance benchmarks. The Lewin Group placed specific blame on the Centers for Medicare & Services’ (CMS) decision to eliminate providers’ downside risk; under the program, providers could thus only share in any potential savings, but not face any monetary penalties for failing to perform.


“Reconciliation payments were greater than anticipated because CMS eliminated downside risk during part of the intervention,” the Lewin Group observed.

The report came out the same day that CMS announced a roster of 1,299 participants under its new BPCI Advanced model, which includes downside risk for its participants. Unlike previous iterations of BPCI, the Advanced track excludes skilled nursing providers as episode initiators, though they can still partner with the providers that directly participate in the program. That new cohort includes 832 hospitals and 715 physician groups across 49 states, the District of Columbia, and Puerto Rico, CMS noted in its announcement.

The BPCI Advanced model — which launched October 1 and will run through December 31, 2023 — was specifically developed with risk in mind, as CMS and the Department of Health and Human Services have moved to hold providers financially accountable.


“The Bundled Payments for Care Improvement Advanced model was the Trump administration’s first Advanced Alternative Payment Model, and today we are proud to announce robust participation,” CMS administrator Seema Verma said in a statement. “We look forward to launching additional models that will provide an off-ramp to the inefficient fee-for-service system and improve quality and reduce costs for our beneficiaries.”

The Lewin Group also found that BPCI models lowered episodic payments by shifting patients away from skilled nursing facilities and into lower-cost home health options for post-acute care (PAC).

“Among the hospital-initiated clinical episodes, reductions in total standardized allowed payment amounts were associated with decreases in institutional PAC payments, particularly SNF payments, and increases in HHA [home health agency] payments,” the Lewin Group observed.

Written by Alex Spanko

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