On March 5-6, 2008, the Medicare Payment Advisory Commission (MedPAC) met in Washington, D.C. to discuss ways to change Medicare payment for an episode of care surrounding a hospitalization as a way to encourage greater “systemness” in health care delivery and improve the accountability for cost and quality of care.

MedPAC advises Congress on Medicare payment policies and is required by law to submit its annual advice and recommendations on Medicare payment policies for specific provider groups by March 1 and June 15 of every year. MedPAC staff presented two draft recommendations focused on pursuing a bundled payment approach for physician and hospital payments. If approved, the recommendations will appear in the MedPAC’s June 2008 report to Congress.

Draft Recommendation 1
Congress should require Centers for Medicare & Medicaid Services (CMS) to confidentially report provider resource use around hospitalization. After two years, Congress should implement “virtual bundling,” which reduces payment to hospitals and inpatient physicians with relatively high resource use across episodes of care for select conditions. The payment penalty can be used to finance additional payments to high quality fee-for-service providers with relatively low average resource use.

Draft Recommendation 2
Congress should require CMS to create a voluntary pilot program to explore issues related to actual bundled payments for services around a hospitalization.

The intent of both recommendations is to decrease Medicare spending, but according to staff, depending on the design, it could result in savings, cost, or be budget neutral. Implications for beneficiaries and physicians would redistribute a portion of hospital and physician payments to reward longitudinal efficiency.