CMS Issues Proposed Rule for Bundled Payment Models

On July 26, 2016, the Centers for Medicare and Medicaid Services ("CMS") issued Proposed Regulations for Episode Payment Models ("EPM's") that will, when and if finalized, go into effect as of July 1, 2017 for a five year period. Multiple Alabama hospitals would be impacted by this new reimbursement methodology as many, but not all, of the Metropolitan Statistical Areas ("MSA's") in Alabama have been targeted for implementation of EPM's if finalized. Although more "fragile" hospitals such as rural hospitals, sole community hospitals, Medicare Dependent Hospitals and Rural Referral Centers may be excluded (CMS has solicited comments whether even these entities should be included within selected MSA's), the Proposed Regulations will otherwise apply to all hospitals within selected MSA's that include Birmingham, Huntsville, Auburn-Opelika, Anniston-Oxford-Jacksonville, Dalton, and Dothan among others. CMS's goal is to burden all hospitals within selected MSA's in order to avoid patient shifts between participating and non-participating providers.

Consistent with its perceived new duties to try alternative payment and treatment regimens that reduce "fragmented, unnecessary or duplicative" care, the Center for Medicare and Medicaid Innovation ("CMMI") will, if the Regulations are finalized, modify the methods by which acute myocardial infarction ("AMI") (defined as DRG's 280-282), coronary artery bypass graft ("CABG") (defined as DRG's 231-236) and surgical hip/femur fracture treatment ("SHFFT") (defined as DRG's 480-482) are addressed and billed. Importantly, CMS has proposed that hospitals "be the accountable financial entity" (emphasis added) that will ultimately include potential repayment obligations starting in the second quarter of the second year of implementation or the Fall/Winter of 2018.

The new proposed models ostensibly reward hospitals that engage in collaborative care with health care providers to avoid lengthy recovery time, prevent hospital readmissions and avoid patient complications. The hospitals would be measured by the cost and quality of care provided to a Medicare fee-for-service beneficiary who is admitted for care based on AMI's, CABG's and SHFFT's while an inpatient and for 90 days after the patient is discharged. The participating hospitals would be paid a fixed target price for each episode of care in which they deliver high quality care, with higher quality care receiving a higher target price. At the end of the evaluation period (one model performance year) the hospital's actual spending for each episode of care (meaning total expenditures under Medicare Parts A and B) would be measured against a target price that reflects acceptable quality of care for the episode. If the hospital meets or exceeds quality standards, they would be paid the savings achieved from doing so. However, hospitals with costs and expenditures that exceed the quality-adjusted target price would be required to repay the Medicare Program. The performance years will run from July 2017 through 2021 with the following allotments for compiling the target prices: (i) for performance years one and two, two-thirds hospital-specific data and one-third regional data; (ii) for performance year three, one-third hospital-specific and two-third regional; and (iii) for performance years four and five, only regional data will be used to ascertain the target prices.

The concept of a continuum of care supervised by a hospital during and following a hospital stay is, of course, sage--if not, perhaps more aptly, politically sound--advice. If implemented, multiple hospitals in Alabama and, of course, in selected MSA's across the country will need to restructure and measure the methods by which care is delivered not only in the hospital but in other locations for the 90 day period following discharge. If the Regulations are enacted, Alabama hospitals will, in the next 11 months, need to develop and contract with "collaborator" networks involving, among others, physicians, physician groups, ACO's, skilled nursing facilities and home care organizations that can be part of and report on the follow up care following discharge for the five year period starting July 1, 2017. CMS intends to issue waivers to facilitate these contractual arrangements, loosening, for example, the supervisory requirements for home health care and the telemedicine requirements for Medicare beneficiaries.

Sadly, the juice may not be worth the squeeze other than the political value associated with a modified payment model. According to Medicare's own statistics cited in the Regulations, the overall fee for service costs for AMI's, CABG's and SHFFT's was $11.1 Billion for calendar years 2012-2014 inclusive, a three year period. Projected cost savings to the Medicare program for the entire five year period starting July 1, 2017 are, if all goes exactly according to plan, $170 Million. The return is less than one percent of projected costs extrapolated from Medicare's own figures. Meanwhile, the cost savings do not take into account the additional reporting, contracting or legal costs to hospitals to establish, maintain and nurture these collaborator networks.

Importantly, the Proposed Regulations would also revise the method by which cardiac rehabilitation is reimbursed in order to encourage more use of these services. According to CMS statistics, only about 35 percent of AMI patients older than 50 receive this indicated treatment despite significant data on its rehabilitative value. Accordingly, it is proposed cardiac rehabilitation and intensive cardiac rehabilitation will be reimbursed at $25.00 for each of the first 11 sessions and then $175 for each subsequent session following an AMI or CABG.

Comments to the Proposed Regulations must be submitted before October 3, 2016. Should your facility like to provide comments to the Proposed Regulations or develop "collaborator" networks consistent with these new proposed reimbursement requirements, please contact either author below.

Philip M. Sprinkle II is a partner in the Atlanta office of Balch & Bingham, and serves as co-chair of its Health Law Practice Group. Natalie R. Majeed is an associate in the Atlanta office of Balch & Bingham, and is a member of its Health Law Practice Group.