By far, the biggest change Health Partners’ Donna Zimmerman sees in terms of reimbursement in 2017 is the increased momentum behind bundled payments for orthopedic care.

Zimmerman“Hospitals need to be prepared for more of this,” says Zimmerman, who is senior vice president of government and community relations at the Bloomington, Minnesota-based nonprofit healthcare provider and payer. That’s because employers are increasingly interested in bundled payments for orthopedic and other types of procedures, and they’re often offering incentives related to bundled episodes of care in benefit plans, she says.

Offering a bundled payment option for a joint replacement, in particular, is getting more common. Even with physical therapy that lasts a few months, these are “fairly discrete episodes of care,” says Zimmerman, who adds that bundled payments are particularly attractive to employers and payers since they allow them to manage the total cost of care.

As a result, provider organizations will need to continue to focus on improving their quality scores, since this is one of the primary ways to distinguish their facilities from competing hospitals. In addition to the total cost of care, Zimmerman highlights that payers will be keeping tabs on providers’ complication rates and will adjust the prices they’re willing to pay providers for bundles of care as a result.

Here’s more on how bundled payments will evolve in 2017, and two other reimbursement changes to watch.

Bundled payments 

Eric Fontana, a managing director with the Advisory Board Company, agrees with Zimmerman that the move toward episode payments will be a theme in 2017. “Effectively, we’re going to start to see [CMS’] comprehensive joint replacement program begin to [introduce] downside risk. This is obviously taking place for the first time in a mandatory bundled payment program.”

The comprehensive joint replacement program launched April 1, 2016, and hospitals are held financially responsible for the quality and cost of the surgical procedure, which starts when the patient is admitted and ends 90 days after their discharge from the hospital.

Fontana also points to the full roll out of CMS’ coronary artery bypass grafting (CABG) and acute myocardial infarction (AMI) bundles that are being kicked off in July 2017 in 98 metropolitan areas across the country.

Even non-participating providers are going to be paying attention to how the CABG and AMI bundled payment programs roll out, because the expectation is that these will ultimately roll out nationally, he says.

“The whole point of [bundled payment] programs is to drive increased scrutiny on the disposition of the payment, and making sure … that the destination of discharge is the most clinically appropriate,” says Fontana. For example, providers will need to look more critically at whether they need to discharge a patient to a skilled nursing facility if a home-health provider can deliver all of that patient’s clinical care.

For participants and non-participants in the new bundled care programs, data analysis is really key, he says. “This insight will enable providers to determine their highest cost drivers—whether that’s with skilled nursing facilities or home health—and then use that as a starting point to determine what resources are used in these bundles of care.”

Still, one key difference between participants and non-participants, says Fontana, is that participants will receive data on their performance from CMS on a quarterly basis. Nonparticipants will need to develop their own analyses to understand the resources their patients are using in these episodes of care. He expects that any aggregated data and learnings provided by CMS will be “gobbled up” by providers.

Two-midnight rule 

CMS recently dropped inpatient pay cuts associated with the “two-midnight rule.” The rule stated that inpatient admissions would generally be payable under Part A if the admitting practitioner expected the patient to require a hospital stay that crossed two midnights and the medical record supported that reasonable expectation. It also stated that Medicare Part A payment was generally not appropriate for hospital stays expected to last less than two midnights.

In fiscal 2014, in response to rising Medicare Part A costs associated with the “two-midnight rule,” CMS initiated a .2% payment reduction for inpatient services. In fiscal 2017, hospitals will see a temporary increase of 0.6% in payments from CMS. This is CMS’ attempt to address the reductions of the last three years.

The two-midnight rule had a huge impact on providers because when patients were admitted to the hospital as “observation admissions,” the documentation required to shift a patient to inpatient status (when deemed necessary by the provider) was unwieldy, says Linde Wilson, managing director of healthcare deal strategy at PwC. For example, a patient would show up at the hospital with chest pain, and that patient would automatically become an observation admission. If the patient was there for two days, and the doctor needed the patient to stay for one more day, it was difficult to justify an inpatient bed that the patient would then have to leave because of the two-midnight rule.

Since October 1, 2016, when CMS stopped imposing an inpatient payment cut to hospitals under the two-midnight rule, observations have increased significantly, says Wilson.

Site-neutral payments

Fontana points to “rumblings” from the federal government’s Medicare Payment Advisory Commission, the Congressional Budget Office, and the Office of the Inspector General at HHS about site-neutral payments that would seek payment equalization across sites of care. “A lot of the attention there has been on hospitals that have purchased off-campus [practices] and then converted them to provider-based departments. Then the hospitals could bill for the additional facility fees,” he says.

In its proposed rule, which it made available in July, CMS chose to interpret section 603 of the Bipartisan Budget Act of 2015 not by equalizing outpatient payment rates but by basing reimbursements on the Physician Fee Schedule, says Fontana. Still, this rule is only in a proposed state right now, and he expects CMS to receive a great deal of commentary before the rule is finalized for the 2017 calendar year.

Fontana notes that the current proposal focuses on a subset of hospitals—those with more than 250 beds, among other criteria. If the rule goes into effect as proposed, the result could be a $500 million reduction in payments, according to CMS estimates.

This article originally appeared here.