The Changing State of State Reimbursements: The Care Improvement Initiative

Care Improvement Initiative

We are in a current state of flux, as state reimbursement models in behavioral health as well as primary care, shift from a fee for service to a fee for value model. In this environment, enter a new program from the Centers for Medicare and Medicaid (CMS) that is designed to bundle care across providers. Known as the Bundled Payments for Care Improvement Initiative, this voluntary program enables providers to define their own pricing bundles to empower collaboration, quality and efficiency within specific care processes.

The advantage is that once behavioral health organizations, hospitals and primary care providers standardize care process for the bundling program, the entire care continuum will synchronize for the benefit of the individual receiving care. Potential areas of a breakdown in communication, such as effective discharge management, will now have an economic incentive to highlight and repair broken processes, ultimately reducing readmissions.

The Bundled Payments Initiative is comprised of four broadly defined models of care, which link payments for multiple services beneficiaries receive during an episode of care. Models 1 and 4 deal with acute care hospital stay only, where models 2 and 3 can more broadly impact behavioral health providers. Models 2 and 3 involve a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care.

In Model 2, the episode of care will include the inpatient stay in the acute care hospital and all related services during the episode. The episode will end either 30, 60, or 90 days after hospital discharge. For Model 3, the episode of care will be triggered by an acute care hospital stay and will begin at initiation of post-acute care services with a participating skilled nursing facility, inpatient rehabilitation facility, long-term care hospital or home health agency. The post-acute care services included in the episode must begin within 30 days of discharge from the inpatient stay and will end either a minimum of 30, 60, or 90 days after the initiation of the episode. While Models 1, 2, and 4 include inpatient care, encouraging participation of a hospital or health system, the exclusive post-acute bundle in Model 3 could potentially be managed by post-acute care providers and physicians without involvement of a hospital partner.  Over the course of the three-year initiative, CMS will work with participating organizations to assess whether the models being tested result in improved patient care and lower costs to Medicare[1].

Prospective versus Retrospective: What’s the Difference?

The key difference between prospective and retrospective bundling is the method Medicare uses to reimburse providers for the bundled episode of care. Prospective bundling provides a lump sum payment to the hospital that the hospital in turn distributes to providers involved in the episode of care. Under a retrospective model, all providers continue to receive fee-for-service payments at their standard Medicare reimbursement rates. After the episode, Medicare reconciles the payments to a pre-established, discounted bundle price. If the providers come in under the bundled rate, Medicare pays the difference, but if they are over the bundled rate, the providers must repay the difference to Medicare. Both models 2 and 3 are retrospective models.

What are the risks of bundling?

The Advisory Board Company breaks out the risk of bundling between financial risk, design risk and operational risk. Hospitals and health systems will bear a direct financial risk of offering Medicare a voluntary price cut on all bundled cases. If cost of care cannot be reduced, or care volumes increased, the system loses money. Providers will also face a design risk in that all applicants must successfully construct and price their bundles based on historical cost data provided by Medicare. Finally, there is an ongoing operational risk in that participating providers will need to standardize care processes, coordinate care across the continuum, and engage patients as partners in care[2].

The National Scorecard on Payment reform for 2014 states that bundled payments account for only 0.1% of all total payments[3]. To increase the attractiveness of this type of approach, we strongly recommend technology that effectively coordinates care and raises visibility into episodic care for all participants that work with an individual across all the phases of treatment, especially the crossover between behavioral health and physical health conditions. Combine that with a platform for effective patient engagement and that can work as a successful approach within the Medicare bundled payments model.

[1] “Bundled Payments for Care Improvement (BPCI) Initiative: General Information,” Centers for Medicare and Medicaid Services,

[2] Lazerow, Rob “Top 10 Questions about the Bundled Payments for Care Improvement Initiative,” (October 10, 2011),

[3] “National Scorecard on Payment Reform,” Catalyst for Payment Reform,


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