1Center for American Progress | Replace Fee-for-Service with Bundled Payments in Medicare
Replace Fee-for-Service withBundled Payments in Medicare
David M. Cutler, Ezekiel J. Emanuel, and Topher Spiro October 2011
Since up to one-third o medical spending is excessive and unnecessary,
reorming how Medicare pays or health care is essential to reducing health-care costs and improvingthe quality o care. Rather than paying a ee or each specic service separately, pay-ments should be bundled together or multiple providers. Tis would create strongincentives or providers to coordinate care and eliminate unnecessary costs.For ully integrated providers that orm accountable care organizations—teams o pro- viders that coordinate care—payments will be bundled to cover all o a patient’s care.But or most providers—which are not integrated—payments must be bundled or anepisode o care, with providers dividing the payment among themselves.For instance, a bundled payment or a hip replacement would cover pre-surgical prepa-ration, anesthesiology, the surgical procedure, operating room ees, the hip implant,radiological examinations, laboratory tests, and rehabilitation. Bundled payments must be adjusted or the quality o care and health status to prevent providers rom skimpingon care or avoiding high-risk patients.Te Aordable Care Act requires a ve-year pilot program or bundling payments orepisodes o care around hospitalization or 10 conditions, with voluntary participation by providers. Te secretary o health and human services is authorized to expand theprogram in 2016 i doing so would reduce costs and improve quality. Tis transition to bundled payments should be broadened and accelerated.
Expand the Acute Care Episode, or ACE, bundling program for cardiac and orthopedicprocedures nationwide—and include related post-acute care such as rehabilitativeand home health services—by January 2013.
Building on over a decade o testing, in