Value-based health care: How to succeed in a bundled care APM

Within the span of five years, two pieces of legislation that significantly affect physician payment and patient care were enacted—the Affordable Care Act (ACA) of 2010 and the Medicare Access and CHIP (Children’s Health Insurance Program) Reauthorization Act (MACRA) of 2015. With the passage of these laws, surgeons could no longer adopt a wait-and-see approach to national health care policy legislation. This article briefly summarizes the major payment provisions in the ACA and MACRA and their possible fate under the new presidential administration and Congress. It also describes lessons learned at one institution that developed bundled care packages to improve quality of care while simultaneously controlling cost.


With little fanfare but significant potential repercussions, the Medicare physician payment system changed in 2010 when the U.S. Congress passed the ACA—shifting the emphasis in determining how providers are paid from volume to quality. Significant portions of physician reimbursement would now be directly tied to quality metrics. In addition, physicians participating in these new payment models would now be directly responsible for costs incurred by all other practitioners during the episode of care. They also would be accountable for costs incurred in the first few months after patients were discharged from the index admission.

Although the ACA includes some adjustments to the Medicare physician fee schedule, MACRA imposes the most sweeping changes. Of particular significance when MACRA passed in 2015 was the repeal of the sustainable growth rate (SGR) formula, which was on the brink of causing reductions in physician payment of nearly 30 percent. Although the physician community initially greeted MACRA with a favorable response, largely because of the SGR repeal, the legislation imposes a number of important changes in the way Medicare will pay for services in the future. Most importantly, it attempts to better align quality with a reduction in unnecessary physician spending.

MACRA adds strong financial incentives for physicians to become more accountable for the quality of care they provide and for controlling costs. These incentives are provided through the Centers for Medicare & Medicaid Services (CMS) Quality Payment Program (QPP). The QPP has two major components: the Merit-based Incentive Payment System (MIPS), which adheres to the traditional fee-for-service payment model, and the Advanced Alternative Payment Models (APMs) that can be used to develop innovative reimbursement policies.


Payment adjustments under MIPS will be based on a composite performance score derived from metrics: quality, resource use, advancing care information, and improvement activities. CMS began measuring performance in January, with payments based on MIPS measures beginning in 2019.

Payment rates will be adjusted plus or minus 4 percent per year, increasing to 9 percent. By 2022 MIPS is projected to be a budget-neutral program, which may imply a tournament model for physician rewards and penalties; that is to say, equal dollar amounts will go to physicians who attain performance measures above the benchmark with funding coming from those providers who are facing penalties. As such, participants may be required to achieve continuous improvements in an increasingly competitive environment. In addition, Medicare fees will increase by only 2 percent through 2022, and then will remain flat.

As an alternative to this payment structure, physicians may participate in an eligible Advanced APM. Physicians who participate in these new payment models will bear significant downside risk but will receive a 5 percent payment bonus and will be exempt from the administrative requirements and uncertainties of MIPS. In addition, these physicians may receive any additional payments that result from being part of an approved Advanced APM system.

As of November 2016, CMS had identified only six APMs that qualify as Advanced APMs for MIPS exclusion, including the Comprehensive End-Stage Renal Disease Care Model, the Oncology Care Model, and the Next Generation Accountable Care Organization (ACO) Model, among others. CMS estimates that as many as 90 percent of eligible clinicians will be in the MIPS program in 2017 and as few as 10 percent will be in an Advanced APM.1 It is anticipated that CMS will continue to broaden its definition of qualifying Advanced APMs.2

Ramifications of the Republican sweep

November’s national elections gave the Republican Party control of both the executive and legislative branches of government. With a majority in both the House and Senate, and support from the President, efforts to repeal the ACA were under way at press time. However, without a 60-vote supermajority in the Senate, Republicans may be unable to repeal the entire law. Nevertheless, they may succeed in eliminating several consequential provisions. Those portions of the ACA strictly dealing with spending, revenues, or the debt ceiling can be repealed with a simple majority through the budget reconciliation process.

For surgeons and other physicians, the Medicare spending cuts included in the ACA likely will remain intact. These cuts, combined with decreased participant insurance coverage, will result in less provider revenue. The rising government deficit and debt, combined with an aging population, is likely to ensure that government efforts to control spending such as those prescribed in MACRA will continue.

In addition, MACRA passed through Congress with strong bipartisan support (92–8 in the Senate and 392–37 in the House). It is unlikely that Republican lawmakers will repeal their own legislation.

Central to the Advanced APM concept are bundling and ACOs. These two components enable the payment system to move from an emphasis on volume to value. They also guarantee Medicare cost savings and have a significant potential upside for the motivated provider. Bundled payments have received bipartisan support and their development is likely to continue in spite of the potential dissolution of the ACA-created Center for Medicare and Medicaid Innovation (CMMI). In fact, even if Congress does dissolve the CMMI, it is likely that the U.S. Department of Health and Human Services will continue to promote innovations in payment through some other means.

Both population health management and value-based health care have strong bipartisan support and will likely thrive under the new administration. Health insurance payments will depend more heavily on outcomes. The control of rising health care expenditures will depend on paying for the quality of care provided, rather than the number of procedures performed. Already, the popularity of value-based health care has led to significant consolidation within the health care sector and greater transparency. Hospitals and physicians will seek to integrate in order to better control costs and improve the patient-reported experience.

Ensuring success in a surgical bundle

Beginning in 2013, Baystate Medical Center, Springfield, MA, entered into CMS’ Bundled Payments for Care Improvement initiative (BPCI) for all isolated coronary artery bypass grafting procedures covered by Medicare. The BPCI initiative comprises four broadly defined models of care, which link payments for the multiple services beneficiaries receive during an episode of care. Under the initiative, health care facilities enter into payment arrangements that include financial and performance accountability for episodes of care. These models may lead to higher quality and more coordinated care at a lower cost to Medicare.

The purpose of bundled payment is to decrease spending through several mechanisms, including a reduction in the number of unnecessary physician services provided during hospitalization, more judicious use of health care resources during the hospital stay, and a reduction in post-discharge costs, including unnecessary post-acute care services and avoidable readmissions. If the costs of an episode of care are less than the bundled payment amount, the providers (hospital and physicians) can keep the difference. If the costs of care exceed the bundled payment amount, however, the providers bear financial liability.

In the Baystate Medical Center BPCI APM, the episode of care includes a Medicare beneficiary’s inpatient stay in the acute care hospital, post-acute care, and all related services during the episode of care, which ends 90 days after hospital discharge. In addition, participating hospitals agree to a 2 percent up-front fee reduction.

Functioning in a bundled APM requires administrative, financial, and infrastructure support, which is best attained in a large institution. Hospitals must provide appropriate data, resources, and incentives. Our hospital has created a replicable model to implement bundled payment programs by emphasizing collaboration among our clinical divisions and those within our departments of health care quality and finance. We also have a physician health organization that is well-versed in risk management.

Despite these successes with the program, early on we learned some valuable lessons to ensure success in a bundled payment APM, including the following:

  • The first step to success in a bundled payment arrangement is to reduce readmissions. After coronary artery bypass graft surgery, readmission rates are between 13 percent and 24 percent. As a result, predictor models have been developed, which quantified odds ratios for readmission with risk factors such as chronic obstructive pulmonary disease, renal failure, and diabetes.3 On discharge, we identify those patients at high risk for readmission. Our clinical coordinator then follows a patient at risk by phone, schedules early postoperative visits, enrolls the patient in a heart failure rehabilitation clinic, and coordinates care with the patient’s primary care physician. In addition, all postoperative patients entering our emergency department trigger an electronic notification to our inpatient service before their admission for expedited review and disposition.
  • The post-acute disposition was the single greatest variable affecting a positive margin in our bundle. By altering patient and family expectations, earlier frequent daily mobilization, and possibly extending inpatient stays for an extra day, we were able to increase the percentage of patients discharged to home with visiting nurse services versus discharge to a skilled nursing facility. For those patients who went to a skilled nursing facility, close coordination with the facility decreased the post-acute length of stay, which led to reduced overall costs to the bundle and improved patient satisfaction. We also have developed a preferred provider skilled nursing facility network to align more closely with best practice standards, track outcomes, and improve communication between the primary cardiac surgical inpatient team and our post-acute care partners.
  • To ensure that the Medicare payment amounts are fair, some adjustment for patient severity must be included in the calculations. If bundled payments do not account for severity of disease, providers may not want to provide health care services to sicker patients because of the risk of financial loss. More than ever, health care professionals must provide accurate and complete documentation to correctly document level of acuity and appropriate diagnosis-related group. Accurate coding, which incorporates key documentation, will improve benchmarking and expected morbidity and mortality. Medicare payments in a bundle require risk adjustments, stop/loss protection, and other insurance mechanisms to ensure fair payment for complex cases and protections from catastrophic outlier patient care.
  • Coordination of care is essential. A dedicated care coordinator needs to follow this cohort of patients, beginning with preoperative education about length of stay expectations and the need for family support at home on discharge. During hospitalization, the care coordinator needs to identify hospital barriers to a timely discharge. At Baystate Medical Center, we were able to decrease our length of stay and facilitate the discharge of patients receiving Coumadin with sub-therapeutic international normalized ratios and close daily home blood work. After patients are discharged home, close follow-up by phone, with daily weights, medication reconciliation, and early office postoperative appointments, prevented emergency department visits. All readmissions were scrutinized for potentially avoidable events.
  • During the index admission, physicians can reduce unnecessary medical expenses if they are properly engaged. At our institution, an engaged physician leads a multidisciplinary group of advanced practitioners, residents, bedside and charge nurses, pharmacists, rehabilitation specialists, and respiratory therapists to ensure the delivery of coordinated care.

It is also important to maximize transparency and identify relevant metrics within the service line. Physicians need to see differences in costs and outcomes and how their performance compares with that of their colleagues. Given the competitive nature of physicians and especially surgeons, peer comparisons can motivate change and drive down hospital costs. A study published in 2016 in the Journal of the American Medical Association found that peer comparison resulted in a 16 percent drop in unnecessary prescriptions.4 Baystate Medical Center administrators found that by sharing utilization metrics among the cardiac surgeons, they could successfully drive down hospital costs.

Medicare has already started publishing comparative data and patient-reported outcomes. The Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) survey is the first national, standardized, publicly reported survey of patients’ perspectives of hospital care. By making quality and satisfaction reports publicly available, Medicare has created an incentive for physicians and hospitals to improve the patient experience.

Looking forward

In the future, surgeons likely will benefit from participation in an APM, such as a BPCI. At this time, however, to qualify for MIPS exclusion, the only clear Advanced APM option may be to join a consolidated risk-bearing ACO with significant downside risk.

On December 20, 2016, CMS released the Advancing Care Coordination through Episode Payment Models (EPMs) final rule.5 The rule establishes three new Medicare EPMs for acute myocardial infarction (AMI), coronary artery bypass graft (CABG), and surgical hip/femur fracture treatment (SHFFT) procedures provided in designated geographic areas. The rule also includes provisions to finalize the Cardiac Rehabilitation (CR) Incentive Payment program and to integrate bundled payment programs into the QPP.

Under the final rule, acute care hospitals that are reimbursed under the Inpatient Prospective Payment System and are located in 98 metropolitan statistical areas (MSAs) selected by CMS will be required to participate in retrospective EPMs for Medicare fee-for-service beneficiaries receiving care during AMI and CABG episodes. The agency will implement the SHFFT model in 67 MSAs where the Comprehensive Care for Joint Replacement program is already in place. An AMI, CABG, or SHFFT model episode will begin with an inpatient admission and end 90 days after discharge. The episode of care will include the inpatient stay and related care covered under Medicare Parts A and B, including hospital care, post-acute care, and physician services, within 90 days of discharge. CMS will continue to pay participating hospitals, providers, and suppliers according to the current Medicare fee-for-service rates.

The AMI EPM, the CABG EPM, and the CR Incentive Payment program will be tested for five performance years—July 1, 2017, through December 31, 2021. CMS estimates that 1,120 acute care hospitals will participate in the AMI and CABG models, and 860 hospitals will participate in the SHFFT model. CMS has indicated that these bundled payment models should qualify for the Advanced APM track of MACRA, thereby providing exclusion from MIPS.6

The federal government will continue to support a payment system that encourages changing physician payment from fee for service to payment that is based on transparent performance metrics, patient experience, and patient outcomes. There is an early opportunity for significant financial reward from a high-value program that is focused on quality metrics, HCAHPS scores, care coordination, and the post-acute disposition. The next hurdle will be maximizing reimbursement through an optimized patient-focused APM.


The author is grateful to the bundled care team members at Baystate Medical Center for their assistance.


  1. Mechanic RE. When new Medicare payment systems collide. N Engl J Med. 2016;374:1706-1709.
  2. Clough JD, McClellan M. Implementing MACRA: Implications for physicians and for physician leadership. JAMA. 2016;315(22):2397-2398.
  3. Shahian DM, He X, O’Brien SM, et al. Development of a clinical registry-based 30-day readmission measure for coronary artery bypass grafting surgery. Circulation. 2014;130(5):399-409.
  4. Meeker D, Linder JA, Fox CR, et al. Effect of behavioral interventions on inappropriate antibiotic prescribing among primary care practices: A randomized clinical trial. JAMA. 2016; 315(6):562-570.
  5. Centers for Medicare & Medicaid Services. Episode payment models: General information. Available at: Accessed January 24, 2017.
  6. Centers for Medicare & Medicaid Services. Notice of proposed rulemaking for bundled payment models for high-quality, coordinated cardiac and hip fracture care. Available at: Fact-sheets/2016-Fact-sheets-items/2016-07-25.html. Accessed January 24, 2017.

Tagged as: , , ,


Bulletin of the American College of Surgeons
633 N. Saint Clair St.
Chicago, IL 60611


Download the Bulletin App

Apple Store
Get it on Google Play
Amazon store