CMS Finalizes Rule on Mandatory Episodic Payment for Cardiac and Hip Fracture Bundles: Ultimate Fate Uncertain as New Administration Takes Reins, But Time is Short to Prepare

Authored by:
Brian Ellsworth, MA, Director, Payment Transformation
Health Dimensions Group

In a year where we have witnessed many twists and turns in health policy and politics writ large, we should no longer be surprised by anything. To that end, on December 20, 2016, the Centers for Medicare and Medicaid Services (CMS) finalized the Advancing Care Coordination through Episode Payment Models rule that was first proposed in July 2016, as well as finalized a new payment track for Medicare ACOs. Hospitals in the designated regions would be required to participate in 90-day episodic payment models for cardiac and orthopedic bundles. Unless delayed or repealed by the incoming Administration, the mandatory episode payment models would go into effect in a few short months (July 1, 2017) as originally proposed.

There is some controversy about mandatory episodic payment models. In September 2016, 179 Members of Congress, including incoming Secretary of Health and Human Services designee Dr. Tom Price, wrote to CMS expressing their concerns about implementing large scale, mandatory alternative payment models (APMs) without Congressional input, possibly affecting care to patients and commandeering clinical decision-making. In addition, the incoming Trump administration has made no secret of its disdain for last-minute rulemaking that imposes significant new mandates on regulated entities.

That said, CMS makes several compelling arguments in the final rule for moving forward in response to those and other concerns:

  • Large scale, mandatory demonstrations are necessary to truly ascertain how these new payment models work across a broad swath of providers and localities.
  • Changes to these payment models are necessary for them to qualify as “Advanced” APMs under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), also known as the physician payment fix bill. This is critical because without access to a large array of Advanced APMs, physicians will have a hard time qualifying for the 5 percent Medicare payment bonus envisioned under MACRA because that law requires that a significant portion of physician revenues come from Advanced APMs in order to qualify for the bonus. Of note, shortly after the announcement of the final rule by CMS, the American Medical Association (AMA) expressed its support for making more payment models qualify as Advanced APMs under MACRA, sending an important signal to the new Administration.
  • Regarding hospital readiness, CMS has pushed back the required assumption of downside risk in the mandatory episode payment models. There is also an option to assume downside risk quicker if the hospital wishes to seek Advanced APM status.
  • In response to comments about ensuring quality, CMS noted the strong linkage of payment to quality metrics and the beneficiary protections in the final rule.

Exactly how all of these dynamics are going to play out after Inauguration Day remains as yet unknown. Given the few short months until implementation as the final rule currently reads, it is not too soon to prepare for significant value-based transformation, especially in markets where there will be multiple mandatory and voluntary alternative payment models in play.

Here are some of the key things that hospitals, physicians, and post-acute providers need to know about the final rule:

  • Mandatory cardiac care bundles: Two new mandatory episodic payment models will require participation of 1,120 hospitals in 98 randomly selected regions across the country in 90-day episodic bundles for patients who receive treatment for heart attacks and heart surgery to bypass blocked coronary arteries (to be referred to as “AMI Bundles” and “CABG Bundles,” respectively. In addition, incentives are being provided in 90 regions (45 regions overlapping with cardiac bundles and 45 different regions) affecting over 1,300 hospitals for cardiac rehabilitation following a heart attack or heart surgery over a 90-day episode of care following hospitalization for one of those conditions. This will be referred to as the Cardiac Rehabilitation (CR) Incentive Payment Model.
  • Addition of hip fractures to mandatory joint replacement bundles: Over 860 hospitals already required to be participating in the Comprehensive Care for Joint Replacement Model (CJR) in 67 markets, will now also be required to participate in mandatory bundling for a 90-day period for patients who receive surgery after a hip fracture. This will be referred to as the Surgical Hip and Femur Fracture Treatment (SHFFT) Model. In addition, CMS is finalizing updates to CJR, which began in April 2016, to include allowing the model to qualify as an Advanced APM, as well as tweaks to align the model’s policies with other episode payment models. The addition of hip fractures to joint replacement means that every hospital in a mandatory CJR region will now be bundling for 30–50 percent more orthopedic episodes, necessitating robust care redesign and effective post-acute management strategies.
  • New Payment Track for Accountable Care Organizations: The new Medicare ACO Track 1+ Model will have more limited downside risk than Tracks 2 or 3 of the Medicare Shared Savings Program (MSSP) in order to encourage more practices, especially small practices, to advance to performance-based risk. The overwhelming majority of MSSP ACOs have been in Track 1 (upside-only risk) and, thus, were not able to qualify as an Advanced APM (which requires an assumption of downside risk). With this change, more Medicare ACOs will have the option to qualify, allowing their participant doctors a better opportunity to qualify for bonuses under the MACRA physician bonus structures.

Many of the features of the episodic payment models, such as waivers of payment and coverage rules (e.g., three-day prior stay rule for Medicare SNF coverage) and beneficiary notification requirements are similar to, or the same as, originally proposed.

Of particular note are the emerging rules on how all of these payment models will overlap. For instance:

  • There are 17 regions where both mandatory orthopedic and cardiac bundling will occur. Those regions are more likely to reach a tipping point on care redesign and post-acute management as hospitals in those regions become at risk for an increasingly significant portion of their Medicare fee-for-service revenues. A list of regions for each of the mandatory bundles, as well as which ones overlap, can be found here: Cardiac and CJR Mandatory Regions FR FINAL 12.22.16.pdf
  • The interaction between bundling and ACOs is also important. Beneficiaries included in a mandatory episode payment model may also be assigned or aligned to an ACO if both programs are applicable, in which case the bundler accrues all the savings and the ACO does not, unless they agree to gainsharing. Additionally, episodes initiated by beneficiaries who are prospectively assigned to certain programs such as the Next Generation ACO Model, the Comprehensive ESRD Care Model, and MSSP ACOs in Track 3, will be excluded from the mandatory episodic model. In those cases, the ACO will accrue the savings unless it shares with providers.

These emerging complexities must be mastered on a market-by-market basis by providers seeking to position themselves for success in a value-based world. In coming weeks, HDG will summarize important details and provide a webinar on January 19, 2017. Also, these and other issues will be discussed in the Intensive Session: Owning the Risk-A Journey into Value-Based Transformation at our National Summit in San Diego, California, on Tuesday, February 28, 2017, from 2:00 p.m. to 4:30 p.m.

In the meantime, the Advancing Care Coordination through Episode Payment Models final rule can be viewed at starting December 21, 2016. For more information about the individual cardiac and orthopedic bundled payment models finalized through this rule, visit the CMS Innovation Center website at



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