Draft Health Reform Bill Includes Bundled Payments

June 24, 2009

A draft health reform bill released late last week by three House committee leaders includes significant measures to develop a bundled payment policy for post-acute care services under Medicare. The bill, drafted by House Education and Labor Committee Chair George Miller (D-California), House Energy and Commerce Committee Chair Henry Waxman (D-California) and House Ways and Means Committee Chair Charles Rangel (D-New York) would require the Secretary of Health and Human Services (the “Secretary”) to develop a detailed plan to reform payment for post-acute care services.

The stated goals of the plan to reform payment are to improve the coordination, quality, and efficiency of post-acute care services and to improve outcomes for individuals, including reducing hospital re-admissions. The bill would require the Secretary’s plan to include detailed specifications for a bundled payment for post-acute care services. Post-acute care services to be included in the post-acute care bundle are services for which payment may be made under Medicare for services furnished by skilled nursing facilities (SNFs), inpatient rehabilitation facilities (IRFs), long term care hospitals (LTACHs), hospital-based outpatient rehabilitation facilities, and home health agencies. In developing the plan, the Secretary would be required to consider several issues:

  1. The nature of bundled payments, including the type of provider or entity to whom payment should be made, the scope of activities and services to be included in the post-acute care bundle, whether payment for physician services should be included in the post-acute care bundle, and the period covered by the post-acute care bundle (e.g., 30 days).
  2. Whether the bundled payment should be consolidated with the payment under the inpatient prospective payment system (i.e., the Medicare Severity Diagnosis Related Group (MS-DRG) payments) or whether a separate payment should be established for the post-acute care bundle.
  3. Whether the bundled payment should be applied across all categories of providers of inpatient services and post-acute care services or whether it should be limited to certain categories of providers, services, or discharges, such as high volume or high-cost MS-DRGs.
  4. The extent to which bundled payment rates can be established to achieve offsets or efficiencies and whether such payment rates should be established nationally or geographically, and whether they should vary according to discharge, case mix, outliers, wage rates, or other appropriate factors.
  5. The nature of protections needed for beneficiaries under a post-acute care bundle to ensure quality of care, an adequate level and amount of services, and beneficiary choice of provider.
  6. The nature of relationships that may be required between hospitals and providers of post-acute care services to facilitate the post-acute care bundle including gain sharing, anti-referral, anti-kickback, and anti-trust laws.
  7. Quality reporting measures appropriate for hospitals and post-acute care providers
  8. Cost-sharing rules for the post-acute care bundle.
  9. Application of various rules pertaining to post-acute care providers such as the post-acute transfer policy, three-day hospital stay to qualify for services furnished by SNFs, and coordination of payments and care under Medicare and Medicaid.

In addition to framing the issues for consideration by the Secretary, the bill would require the Secretary to expand the Acute Care Episode (ACE) Demonstration for Medicare to include post-acute care services no later than six months after enactment of the bill. The ACE Demonstration is being conducted to test the effect of bundling Part A and Part B payments for select cardiovascular and orthopedic episodes of care to improve the coordination, quality, and efficiency of that care. Five sites located in Texas, Oklahoma, New Mexico, and Colorado were selected to participate in the Demonstration.

It is too early in the health reform debate to determine with any certainty the specifics of a proposal to develop post-acute care bundled payments; however, the prevalence of proposals for post-acute care bundled payments from the President, lawmakers, and government agencies strongly suggest that some plan for post-acute care bundled payments would be included in final versions of national health reform bills. The content of this draft bill highlights the many issues that the Secretary would need to consider in implementing the post-acute care bundle and also the many open questions that bundled payments would raise for acute care and post-acute care providers. For a larger discussion of some of the issues involved in post-acute care bundled payments, contact one of the authors for a copy or our white paper To Bundle or Not to Bundle: Lawmakers Explore the Question.