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Controlling Costs by Expanding the Medicare Acute Care Episode Demonstration

Medicare’s Acute Care Episode (ACE) demonstration bundled hospital and physician payments for 37 inpatient cardiac and orthopedic procedures. This payment structure improved coordination between physicians and hospitals and motivated hospitals to negotiate lower prices with device manufacturers, in most instances saving money without evidence of stinting on care. The program should be expanded.

Under the 3-year ACE demonstration, which began in 2009, Medicare paid the 5 participating organizations a global budget for high-margin procedures, including cardiac valve surgery, coronary artery bypass grafts, defibrillator implantation, cardiac pacemaker placement, and knee and hip replacements. The hospital sites were Baptist Health System in San Antonio, Texas; Oklahoma Heart Hospital and Hillcrest Medical Center in Tulsa; Lovelace Health System in Albuquerque, New Mexico; and Exempla Saint Joseph Hospital in Denver, Colorado. The Centers for Medicare & Medicaid Services posited that with the economies of scale physicians and participants could reduce costs and improve quality.

The above excerpt was originally published in Journal of the American Medical Association.