MHI – Q: What are Medicare demonstration projects?

A: Think of Medicare demonstration projects as laboratory experiments in a controlled environment. They provide opportunities to try out new policies in healthcare and payment delivery systems before making any permanent changes to the Medicare program.

The projects typically apply to specific groups of people or providers and areas of the country. If the project goes well, legislation may be proposed to make these temporary changes permanent.
As an example, the Centers for Medicare and Medicaid Services (CMS) initiated a coronary bypass surgery “bundled payment” demonstration project at seven hospitals in 1991. All charges for doctor and hospital services related to the bypass surgery from the date of hospital admission through 90 days after discharge were grouped together.

Actual dollars spent were compared to a pre-established target. If the dollars spent exceeded the target, the providers lost money. If the providers spent less than the target, the providers kept the money. The hope was that this risk-reward method of payment would lead to better coordination of care and a more efficient use of Medicare dollars.

Looks like it worked; legislation for a cardiac care “bundled payment” system will be mandatory in many areas of the country by July 2017.