Mandatory bundled payments are coming in April of 2016. What are bundled payments?  Bundled payments are an effort by the government to reduce health care costs while improving the quality of care for patients. It is a SINGLE payment to healthcare providers for ALL services to treat a given condition. Unlike pay-for-performance reimbursement, bundled payments ask the providers to assume financial risk for the cost of services for a particular treatment or condition, as well as costs associated with preventable complications.

On November 16, 2015, the Center for Medicare & Medicaid Services (CMS) finalized the first mandatory bundled payment program for Medicare fee-for-service payments, the Comprehensive Care for Joint Replacement (CJR) model. Hip and knee replacements are among the most commonly performed inpatient surgeries for Medicare beneficiaries. According to CMS, there were more than 400,000 inpatient knee and hip replacements covered by Medicare in 2013, accounting for $7 billion in hospitalization costs.

Under the final rule, hospitals in 67 designated metropolitan areas will be accountable for the quality and costs of care for an entire hip and knee replacement surgery episode of care, from the time of the surgery through 90 days after discharge. Nearly all hospitals in the designated areas are required to participate, according to CMS. Hospitals that meet certain benchmarks for quality and cost measures will receive a bonus payment. Starting in year two of the program, hospitals can be penalized and have to repay Medicare for a portion of the spending above a set target.

CMS has stated that joint replacement care—including hospitalization, surgery, and recovery— can cost $16,500 to $33,000, depending on the region. In addition, the quality of the procedures varies significantly: complication rates can be more than three times higher at some hospitals than at others.

Under the Patient Protection and Affordable Care Act (ACA), Health and Human Services (HHS) Secretary Sylvia Burwell Mathews was required to establish a five-year, voluntary pilot bundling services program beginning in 2013. The Secretary also has the power to adjust the scope of any pilots after the CMS actuary can attest that savings has occurred with no decrease in health care quality.

In July of 2015, CMS moved to require bundling of reimbursement for hip and knee surgeries. Many medical experts note this is the beginning of the agency’s efforts to link provider profits with costs and quality metrics, health care analysts surmise.  In 2016, CMS will launch the Oncology Care Model to encourage cancer doctors to reduce hospital and pharmacy costs, in part through better care coordination.

CMS is likely to move on to other services in obvious need of improvements in quality and cost effectiveness.

High on the list for bundling pilot programs are several medical conditions that have demonstrated positive outcomes under the Bundled Payments for Care Improvement (BPCI) Initiative, which offers voluntary bundling for 48 conditions. The standouts from that model include congestive heart failure, pneumonia, and stroke.

CMS has been working toward bundled payments for some time and is finally pulling the trigger, said Rob Lazerow, practicing manager with The Advisory Board Company, a consulting practice based in Washington, D.C. “Good results from earlier efforts like the Acute Care Episode Demonstration, which bundled orthopedic and cardiovascular procedures, spurred the agency to act on the Bundled Payments for Care Improvement (BPCI) results sooner than some might have expected,” said Lazerow.

“I think it’s safe to assume that CMS is betting big on the promise of bundled payments to make care higher quality and more efficient,” Lazerow says. “It is likely that they are going to expand to more conditions after starting with hip and knee, and I expect they will continue to focus on the areas where they have been experimenting with bundled payments in the past. I think that is much more likely than introducing entirely new areas for bundling.”.