One of the biggest opportunities for healthcare payment reform in history opened up in August when the Center for Medicare and Medicaid Innovation announced its new Bundled Payments for Care Improvement Initiative.

The Innovation Center is creating four different approaches to payment reforms for care associated with hospitalizations, each of which will enable healthcare providers to improve the quality and reduce the costs of services without facing the significant financial penalties and regulatory barriers that exist under the current payment systems used by Medicare and most commercial health plans.  Applicants will not only have the flexibility to determine which type of payment model will work best for them, they will also have the flexibility to determine which types of patients and health conditions they wish to focus on. 

The payment reform options announced by the Innovation Center will provide greater flexibility for physicians, hospitals, and post-acute care providers to improve the way they deliver care than is possible under either pay-for-performance or shared savings programs, while avoiding forcing providers to take on more financial risk than they can manage or to take accountability for services they cannot effectively control (as traditional capitation systems can require).  These changes will also help providers build the capacity to transition to more comprehensive payment reforms in a way that is feasible for them.

The Innovation Center should be commended for offering multiple paths to payment reform, rather than a single, one-size-fits-all approach.  However, the many different options offered by the Innovation Center also present some complex choices for communities and providers to make.  If you're confused about the differences between the various bundling options and their relative advantages and disadvantages, the Center for Healthcare Quality and Payment Reform's report, Transitioning to Accountable Care: Incremental Payment Reforms to Support Higher Quality, More Affordable Health Care, can help. It explains the different ways in which payments related to hospital care can be bundled, including combining payments to hospitals and physicians for inpatient care, combining payments to acute and post-acute care providers, etc., and it also explains how bundled and episode payments can incorporate warranties for readmissions and other undesirable events.  It also explains how to address a number of significant implementation challenges for physicians, hospitals, and payers, such as how to set the right price for a bundled payment, how to properly divide risk between providers and payers, how to ensure patients are receiving quality care, and how small providers, such as small physician practices, can successfully participate.

Payment reforms such as those offered by the Innovation Center provide an important opportunity for physicians and other healthcare providers to reinvent the way they deliver care to improve outcomes for patients and reduce spending for employers as well as Medicare, but they also provide opportunities for providers to improve their own operating margins.  Well-designed payment reforms can represent a win-win-win for all of the healthcare stakeholders in the community.

Harold D. Miller is the Executive Director of the Center for Healthcare Quality and Payment Reform www.CHQPR.org and the President and CEO of the Network for Regional Healthcare Improvement.  He is currently helping communities across the country, including the Healthy Memphis Common Table, to design and implement payment and delivery system reforms to improve quality and reduce costs.  For more information, contact Harold at miller.harold@gmail.com.

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