So your hospital was selected to participate in the bundled payments program. You are participating in “Model 2” of the bundled payments initiative. In Model 2, the episode of care includes the inpatient stay in the acute-care hospital and all related services rendered during the episode for up to 90 days after the patient is discharged. You decided to pick “simple pneumonia and respiratory infections” as one of the 48 services for bundled payments. 

Included in this bundle are the following diagnostic-related groups (DRGs):


Respiratory infections and inflammations with major complication or comorbidity


Respiratory infections and inflammations with complication or comorbidity


Respiratory infections and inflammations without complication or comorbidity or major complication or comorbidity


Simple pneumonia and pleurisy with major complication or comorbidity


Simple pneumonia and pleurisy with complication or comorbidity


Simple pneumonia and pleurisy without complication or comorbidity or major complication or comorbidity

You obtained data from the Centers for Medicare & Medicaid Services (CMS) to help you evaluate your projected costs for the bundle. You got a black box from CMS with data. You turned it over to your IT department to grind out information to prepare your bid on the bundle. You had your revenue cycle director pull data for patients with these DRGs for the last three years and asked them to work with your medical staff to determine what all the services associated with these DRGs should entail. You grinded and grinded numbers and came up with a bundled cost for a bid.

Here is what you didn’t know: one of skilled nursing facilities (SNFs) in your area was under an extended audit from a Zone Program Integrity Contractor (ZPIC). This audit started when CMS noted an excessively high-frequency billing pattern of therapy services coming from the nursing home on its’ Medicare claims.   

Medicare Advantage plans are commonly audited, with particular scrutiny devoted to payments to providers. Once a provider like a hospital agrees to accept a bundled payment amount, it has in effect become a third-party payer. Really going into unchartered waters, if auditors decide one of the “sub-providers” of bundled payment services improperly billed you and you paid the claim, can the hospital expect any payment at all for the bundled service? 

This is in addition to the fact that the Office of Inspector General (OIG) never really clearly stated that payments to bundled payment partners were completely exempt from the anti-kickback statutes of the False Claims Act. What if, well after the services are provided and during the reconciliation process, auditors question why you are paying a nursing home that routinely overbilled Medicare for therapy services? 

What can you do now that you are in the bundled services business? You can use publicly available “big data” to get some information about your bundle partners. For the data-savvy, you can get Medicare cost report data for hospitals, nursing homes, and home health administrators. This can help you spot general billing and payment patterns that might be out of the norm.

You can also get information from sources like the CMS “Compare” databases to determine if nursing homes in your area have been fined for certain issues. 

In addition, you can make sure that you have the resources to not just pay the other providers that are part of your bundle, but to evaluate the claims they submit to you for payment.

About the Author

Timothy Powell, CPA has over 30 years of reimbursement experience including working with the “Big 4.” His former clients include McKesson Healthcare, PriceWaterhouseCoopers, and Humana. Tim has written numerous articles on healthcare reimbursement for organizations including the Health Care Financial Management Association. Tim is a regular contributor and member of the editorial board of RACmonitor.

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