Performance Reimbursement Programs

The Customer (Medicare) is rolling out or piloting three types of performance reimbursement programs over the next 2-3 years.


The penalties that the customer (Medicare) began October 1, 2012 are just the start.  The Penaltiesfall of 2014 will see as much as 6.5% of a hospitals revenue at risk.  In addition to increases to the “Readmission” and “Value-Based Purchasing” penalties, penalties will begin for “Hospital Acquired Conditions” and Electronic Medical Records capabilities via the “Meaningful Use” program.  These two new penalties will begin October 2014 and January 2015 respectively, are also scheduled to increase in the subsequent years.

While hospital can impact 3.5% of the penalties by improving what happens within the four walls of the hospital, the 3% from “Readmissions” will force them to collaborate with physician groups, post acute care providers (i.e., Skilled Nursing Facilities, Home Health) and insurance companies to improve outcomes.  Most hospitals do not have the capability, data or insight into what happens once the patient leaves the hospital.  To improve post acute outcomes, providers will likely have no other choice then to enter into one or more of the new “episode” or “population” Pay-For-Performance reimbursement models.


This is the beginning of  the journey from reimbursement for “the service” to a reimbursement system tied to “patient recovery”.  The concept is to make one entity responsible for the care of the patient from when they get admitted to the hospital to up to 90 days after they leave the hospital.  This will shift the science from focusing on the best service to the best service for patient recovery.

  • Bundled Payments for Care Improvement (BPCI) – This a new Medicare reimbursement model pilot that begins October 1, 2013. It provides a single payment for an entire acute care episode and/or the care for up to 90 days after a patient leaves the hospital.
  • Commercial Bundled Payments – Insurance companies such as Horizon Blue and employers such as Walmart are developing and contracting with providers for bundled payments.


These are voluntary programs designed to manage the health of a population. The reimbursement is in the form of a set fee of per member per month or gain share based on quality, cost and patient outcomes. This will help drive the transition from “the service” to the patient-centric care we want.

  • Patient Centered Medical Homes (PCMH) – This is a new Primary Care reimbursement model  organizing care around patients, working in teams and coordinating and tracking care over time.
  • Accountable Care Organizations (ACOs) – This the Medicare Shared Savings Program and commercial ACOs programs designed to manage the health of a population and share any savings from being effective.  These organizations are formed by groups of doctors, hospitals, insurers and other health care providers, to deliver coordinated high quality care to their patients.

We have begun the journey from a fee for service reimbursement model to a reimbursement system tied to making people better. The best way to reduce cost is to make people better. The key to success for each of these is not just leveraging science and technology, it is to align incentives with the physicians, hospitals, ambulatory services, post acute services and insurance companies.  Patient-centric care and achieving desired outcomes is a team effort and each of the participants play an important role.