In late August 2011, the Centers for Medicare & Medicaid Services (CMS) invited providers to submit letters of intent as to their willingness to participate in a pilot program designed to test a new payment methodology by which CMS would make a single “bundled” payment for all types of health care services related to a hospital stay for a single illness or course of treatment -- such as a specific surgical procedure (an “episode of care”). Depending on which of the four payment models that define differently what services are included in the episode of care that CMS ultimately adopts after the end of the pilot program, this single payment could cover all hospital care, laboratory testing and durable medical equipment provided to the patient during the hospital stay and the services provided by physicians and other providers while hospitalized and for a specified time period thereafter.

CMS anticipates significant cost savings and improved quality of care once this bundled payment system is rolled out after completion of its testing of the payment methodology and development of the accompanying quality incentives and requirements. Although the focus of this new program is a single hospital stay, it could be expanded to additional healthcare services in the future.