The Biggest Thing in Hospital Medicine Since Patient Safety?


Editor’s note: First of a two-part series examining bundled payments and hospital medicine. Additionally, Dr. Whitcomb works for a company that is an Awardee Convener in the CMS Bundled Payments for Care Improvement (BPCI) Initiative.

The Centers for Medicare and Medicaid Services’ (CMS) bundled payment initiative was announced in August 2011 and has been “live” since October 2013, when a handful of healthcare systems launched bundled payment programs. In 2014, the CMS initiative grew substantially as a result of large-scale interest on the part of hospitals, physician groups, skilled nursing facilities (SNFs), and others in testing the model, which can be described as a single payment for an episode of care.

The BPCI initiative will be a large-scale program by July 1; it starts with an April 1 cohort launch and will result in the program’s presence in all 50 states, with hundreds of physician practices and hospitals participating. The 2015 cohort will involve a large number of hospitalist practices, participating as “episode initiators” that bear clinical and economic responsibility for the bundle, or as “gainsharers” who are eligible to receive incentive payments if they can reduce costs while maintaining measurable quality for an episode of care.

How Does Bundled Payment Work?

The BPCI initiative is a large-scale, three- to five-year demonstration to test bundled payment in patients with fee-for-service Medicare. The most common model, referred to as Model 2, involves an inpatient hospitalization for one of 48 defined episodes, which include both medical and surgical conditions, followed by a recovery period lasting 30, 60, or 90 days.

Each hospital or physician practice that is considering entering the BPCI program receives prices for all 48 episodes based on a 2009-2012 historical average of Medicare part A and B claims associated with that hospital or physician group. After analyzing those prices, the hospital or physician practice may elect to choose the bundles that have a good chance of being successful—where actual spending comes in under the historical target price—based on care improvement expectations in their local system. In Model 2, CMS takes 2% off the target price for 90-day episodes and 3% off the target price for 30- and 60-day episodes, making it all the more important to choose bundles that demonstrate a high likelihood of success.

The BPCI initiative will be a large-scale program by July 1; it starts with an April 1 cohort launch and will result in the program’s presence in all 50 states, with hundreds of physician practices and hospitals participating.

The revenue cycle for hospitals and physicians in the program does not change. They submit claims for their services and receive reimbursement as they always have; however, after the end of each quarter, when the majority of part A and B claims have been processed, a “look back” at actual spending for all participating episodes is reconciled against the baseline price derived from 2009-2012. If there is a net savings compared to the baseline, monies can be distributed to the participating providers—the hospital or physician practice—and those providers may further share some of the savings with other physicians/providers who have signed a gainsharing contract.

Hospitalists and BPCI

Hospitalist practices participate in the CMS program either as episode initiators or gainsharers. As episode initiators, they “own” the bundle, which means they bear economic risk for the program. In this capacity, overall savings will mean the hospitalist practice has a new revenue stream, which could be substantial; however, the practice is also responsible for any losses.

Other hospitalist practices have become gainsharers in the program, which means they have signed an agreement enabling them to receive payments in addition to professional fee revenues for activities that reduce costs while maintaining or improving quality. Such activities are referred to as “care redesign” in the program. Gainsharers do not bear financial risk.

Where Will Savings Come From?

Perhaps ironically for hospitalists, the main source of savings in the BPCI program comes from post-acute care and readmissions. For example, for common conditions like heart failure, COPD, and pneumonia, Medicare spends almost as much on post-acute care and readmissions in the first 30 days after discharge as it does on the index hospitalization.1 As a result, the BPCI program adds further emphasis on preventing readmissions when added to existing pressures, and there is a new premium placed on “right-sizing” the usage of SNF and other post-acute facilities, such as inpatient rehabilitation and long-term acute care hospitals. For hospitalists, this means that new rigor is needed to connect to the post-acute setting, such as determining why a patient is being discharged to a skilled facility.

Another savings pool, called “internal cost savings,” is available to reward decreasing inpatient utilization from, for example, testing, imaging, and implantable devices.


Bundled payment might be the biggest thing to come along for hospitalists since the patient safety movement launched some 16 years ago. Why? Although accountable care organizations have largely focused on ambulatory practice, bundled payment has a major focus on hospital care and on the post-acute care decisions that are made during the hospitalization. If bundled payment proves to be an effective way to pay for—and organize—care, hospitalists will play a central role in the success of this innovation.

In part two of this series, I will explore specific roles hospitalists play in successful bundled payment programs.

Dr. Whitcomb is chief medical officer of Remedy Partners. He is co-founder and past president of SHM. E-mail him at [email protected].


  1. Mechanic R. Post-acute care: the next frontier for controlling Medicare spending. N Engl J Med. 2014;370(8):692-694.

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