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Medicare Is Taking A Page From Priceline

The Obama administration is offering a new pricing strategy for doctors and hospitals looking to improve care and lower costs of treating Medicare beneficiaries.

It could be called “Name Your Own Price” — except that’s already taken by a certain online travel website that has a certain Star Trek actor as its pitchman. But the principle is the same.

On Tuesday, the Department of Health and Human Services unveiled a Medicare pilot program that will pay participating hospitals, doctors and other health providers one, “bundled,” payment to treat a patient for a single episode of care. The program starts in 2012. To participate, providers will have to bid less, in total, than what Medicare would pay each provider separately. The traditional Medicare program pays each hospital and doctor a separate fee for its services, which critics say leads to uncoordinated care and incentives to drive up Medicare bills.

Federal officials say they expect hundreds of health care systems to apply for the program, because it will give them  a financial incentive to work more closely together to improve care and reduce overall costs. Under the current payment system, doctors have little incentive to reduce hospital costs of medications, diagnostic tests or medical supplies. But if doctors and hospital share in the same payment, in theory, they will have incentive to help keep down hospital costs while maintaining quality care.

The federal government has experimented with Medicare bundled payments for decades, including a demonstration program at Hillcrest Medical Center in Tulsa that started in 2009.

Hillcrest officials said they were able to make a small profit while meeting certain quality targets, such as low readmission rates, and providing Medicare savings of 3 percent.

Video: An Experiment In Reducing Costs, Improving Care At Hillcrest Medical Center

The bundling payments concept has yet to take off nationally, largely because in most parts of the country hospitals and doctors are not used to working closely together and amicably splitting the same fee.

The pilot program announced Tuesday in some ways is an even more modest approach than tried before, because doctors and hospitals can still choose to get paid individually on a fee for each service, albeit at a negotiated discount. After a patient-care episode, such as a hip replacement or heart attack, the total payment would be compared to the target price set by the providers’ bid. If the target price is not exceeded, providers would then get to share in those savings.

This new pilot, established as part of the 2010 federal health law, also offers providers the option to get paid a single prospective payment that would encompass all the services to a patient for an episode of care. That would apply to care in the hospital and also include home visits, a nursing home or rehabilitation facility. Hospitals, doctors and other providers such as home health agencies and nursing homes would decide how to divvy up the payment.

“The bundled payments initiative will encourage doctors, nurses and specialists to coordinate care,” said Health and Human Services Secretary Kathleen Sebelius. “It is a key part of our efforts to give patients better health, better care, and lower costs.”