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Health Policy and You, Part I: Medicare A, B, and the ACE demonstration

human heart and circulatory system
human heart and circulatory system

Introducing: Medicare and Medicaid services
In order to delve into the Acute Care Episode (ACE) demonstration, one needs a quick overview of the underlying mechanism—namely, the Centers for Medicare and Medicaid Services (CMS), which operates as follows regarding Medicare Parts A and B in particular.
Medicare Part A (hospital) billing is according to Diagnosis Related Groups (DRGs); Medicare assigns particular rates to each DRG in this coding process which involves codes apportioned to each episode of care. Medicare Part B (physician services) payment is via the fee-for-service model; medical coders assess patient’s documentation and assign diagnosis codes; each resultant code is tied to a specific dollar amount for reimbursement.

What is the Acute Care Episode (ACE) demonstration?
In line with the CMS’ goal of improved health care quality, the three-year ACE demonstration tested the use of a global payment for an episode of care as an alternative approach to payment for service delivery, beginning in 2009 and set to last a total of three years. The bundling was comprised of Part A and B payments for episodes of care, to further improve the coordination, quality, and efficiency of care.
The global payment covered all Part A and Part B services, including physician services, relating to the inpatient stay for Medicare fee-for-service beneficiaries. Participating sites were “Value-Based Care Centers.” The sites were to reach procedure volume thresholds, operationalize quality improvement mechanisms, and be located within Medicare Administrative Contractor (MAC) Jurisdiction 4, comprised of Texas, Oklahoma, New Mexico, and Colorado.

The goal of ACE, and eligible organizations
The ACE demonstration’s goal was to improve patient outcomes, Medicare savings, medical care decision making, and provider cooperation by its bundled payment system’s alignment of incentives for hospitals and physicians. ACE-eligible organizations were defined as entities including a linkage between at least one physician group and at least one hospital, routinely providing the procedures included in the demonstration. Sites had the option to reward individual clinicians, teams of clinicians, or other hospital staff who succeed with quality and efficiency improvements.

ACE success, money saved: Hillcrest Medical Center, Oklahoma
During the first two years of the ACE demonstration, Hillcrest Medical Center saved $1.59 million on cardiac and orthopedic services. At the same time, quality measures including readmission rates, prescribed use of antibiotics, and length of stay all improved.

Yet, there exist uncertainties as to whether bundled payments will be successful in intricate medical treatments for conditions such as congestive heart failure and diabetes, both of which can manifest themselves in a variety of ways within the patient population.

Find out more about the ACE demonstration in the next article, which will discuss a shared savings component as well as the potential of bundled payments.

(Sidenote: Disclaimer: the above post is a simplified policy writing and does not constitute medical advice of any kind).


CMS. “Acute Care Episode Demonstration.” Accessed January 15, 2014.

CMS. “Medicare Acute Care Episode Demonstration for Orthopedic and Cardiovascular Surgery.” Accessed January 15, 2014.

Herman, Bob. “2 Major Lessons from CMS’ Bundled Payment ACE Demonstration.” (April 3, 2012). Accessed January 15, 2014.

Medical Billing and Coding. “How does Medicare Work?” (2012). Accessed January 22, 2014.

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