New healthcare provider revenue model gets shot in the arm

BVWireIssue #143-2
August 13, 2014

Valuation analysts will face greater challenges in looking at cash flow and revenue projections in the healthcare industry because of a new payment model that’s gaining steam.

Here’s the story: The number of healthcare providers participating in the new “bundled payments” model for Medicare payments has just tripled, according to an article in Modern Healthcare (subscription required). The Centers for Medicare and Medicaid Services (CMS) is administering the bundled payments model, which is one of the biggest changes under health reform.

Traditionally, Medicare made separate payments to the various healthcare providers involved in a patient’s care, such as the hospital, physician, rehab facility, and the like. Under bundled payments, one single payment will be made for all providers who render services during a patient’s entire “episode of care” for certain medical conditions. This is designed to increase the quality of care and reduce healthcare costs.

Providers who adopted the model starting in 2013 have seen positive results, encouraging others to sign up. CMS reports that 4,122 providers will be added to the exploratory phase (Phase 1) of the program, joining the 2,412 providers already participating.

It will be interesting to see how providers figure out how to divvy up these payments and also how they calculate costs for an episode of care.

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