Bundled Episode-of-Care Payment for Orthopedic Surgery: The Integrated Healthcare Association Initiative

In recent years there has been strong interest in episode-of-care (EOC) payment for physicians and hospitals as a replacement for fragmented, fee-for-service reimbursement. Medicare’s DRG method for hospitals can be interpreted as the nation’s first bundled payment, though it covers neither physician services nor post-acute services administered after discharge. Medicare’s Acute Care Episode (ACE) demonstration project built directly on DRGs, combining Part B physician services with Part A hospital payments. Most recently, the Center for Medicare & Medicaid Innovation (CMMI) launched the Bundled Payments for Care Improvement initiative (BPCI), pursuing several models of episode-of-care payment for Medicare fee-for-service beneficiaries. Several large employers and private insurers have experimented with bundled payment as well. The Integrated Healthcare Association (IHA) is a multi-stakeholder association with a commitment to collaborative initiatives among insurers, physician groups, and hospital systems in California. Its core competencies lie in performance measurement and payment incentives for these three organizational stakeholders. IHA’s key programs include the statewide pay-for-performance program, in which health plans have paid over $450 million since 2004 to 180 medical groups based on their clinical quality, patient satisfaction, information technology adoption, and appropriate use performance. IHA’s involvement in bundled payment began with an earlier initiative, the Value Based Purchasing of Medical Devices, which brought together hospitals across the state to evaluate the purchasing of high-cost medical devices in orthopedics and cardiology. During 2006-2010, the variance in medical device costs was measured across similar hospitals, leading to an interest in realigning financial incentives for more efficient purchasing using a bundled payment approach. The initial effort, to develop bundled payment for orthopedics, was funded by the California HealthCare Foundation and it established the groundwork to launch IHA’s three year bundled payment demonstration, funded by the Agency for Healthcare Research and Quality (AHRQ). Issue Brief No. 9  September 2013