CMS Embraces Innovation  and Competition

Healthcare-innovation-1.jpgToday, Seema Verma, the Centers for Medicare and Medicaid Services (CMS) Administrator, published a Request for Information seeking feedback on how to lead CMS’s Innovation Center in a new direction.  Her statements reflect a belief in competition, consumer empowerment and a willingness to use waivers to enable meaningful innovation.

What a refreshing message!


“The complexity of many of the current models might have encouraged consolidation within the health-care system, leading to fewer choices for patients. Strengthening Medicare and Medicaid will require health-care providers to compete for patients in a free and dynamic market, creating incentives to increase quality and reduce costs”


We hope she looks closely at bundled payments, which were inspired by the CMS demonstration models sponsored by the two Bush administrations. The models were expanded by CMS in 2013 and are saving nearly $200 million annually for Medicare. This is the highest savings rate of any Alternative Payment Model and represents a framework for improving competition and empowering physician groups and hospitals to improve patient care during the most complex episodes of care. The Congressional Budget Office estimates that savings from broad deployment of bundled payments can reach over $5 billion annually.

Although much smaller than CMS’s Accountable Care Organizations (ACO) initiative, the bundled payment demonstration precisely achieves Ms. Verma’s goals and has the ability to enhance the performance of other models, including ACOs, for several reasons:

Bundled payments promote greater competition and patient choice. Adopting episode-based payments matches provider payment with how patients experience healthcare. Once a network of bundled payment providers has been developed, this becomes a transparent way to expose cost and outcome differences in the community, enabling more informed referrals to care teams.

Bundled payments do not encourage consolidation.  A wide range of organizations has proven capable of managing specific episodes of care.   They empower many types and sizes of providers to take ownership of the episode and drive improved quality and efficiency for patients, ranging from small surgical practices to large physician groups to hospital systems.  

Bundled payments encourage specialists within the healthcare system to coordinate with primary care physicians and post-acute providers around a patient’s episode of care.  This laser focus breaks down the siloes among different providers involved in the care for a patient during an episode of care, allowing the patient and his providers to chart a more satisfying and effective path to recovery.  This complements the engagement of primary care physicians achieved through population health payment models and initiatives.

Guaranteed savings. Medicare has attracted a large number of healthcare organizations into its bundled payment program under arrangements that guarantee savings of 2% to 3%.

Improved collection of patient-level outcomes. Organizing and financing healthcare delivery around a patient’s episode of care creates the most relevant unit of measurement for patient outcomes and provides an easier framework for collecting patient-reported outcomes as part of the bundled payment program. This, in turn, promotes greater competition among healthcare organizations serving specific diseases and conditions.


“The Innovation Center is interested in increasing the availability of specialty physician models to improve quality and lower costs and engage specialty physicians in alternative payment models, especially for independent physician practices.”


Once again, there is no better way to manage this vision than through bundled payments, because:

  • Patients with longer term, chronic conditions, rely upon specialists for their ‘primary care’.  Claims data shows this clearly.  
  • Waivers could encourage greater use of remote monitoring and many other specific services that presently are not reimbursed by Medicare.  These services improve patient outcomes and resource utilization.  The potential for improving patient quality of life and driving cost savings is enormous.
  • There are models of payment for ‘chronic bundles’ that can be risk adjusted and allow ‘nesting’ of related episodes.  Co-morbid patients often move in and out of acute care.  Payment for the general monitoring role can be separate from the acute exacerbations of these underlying conditions.

As a payer, Ms. Verma recognizes the need to retain the flexibility to modify quality and cost control programs at a granular level.  Episode-based payment models have long been proven to be the ‘workhorse’ of cost containment for the most expensive episodes of care. Her instincts are right and her team has the potential to handle more versions of bundled payments.  We hope this encouraging message continues to materialize.