The U.S. Department of Health and Human Services announced Aug. 23 a new initiative to help improve care for patients while they are in the hospital and after being discharged. Doctors, hospitals, and other healthcare providers can now apply to participate in a new program known as the Bundled Payments for Care Improvement initiative, or Bundled Payments initiative.

The initiative, authorized by the 2010 Patient Protection and Affordable Care Act, will better align payments for healthcare services delivered across an episode of care, such as a heart bypass or hip replacement, rather than having patients pay for several services separately.

Bundled payments will give doctors and hospitals new incentives to coordinate care, improve the quality of care and save money for Medicare.

Traditionally, hospitals and physician’s practices have charged patients for healthcare on a fee-for-service based model, similar to an a-la-carte menu at a restaurant. Critics of this traditional model of paying for services have argued that fee-for-service encourages hospitals and physicians to treat patients based on volume rather than quality of care.

Bundling health services is a model that essentially doles out a single paycheck to physicians and a hospital for a group of related services, meaning healthcare providers have a greater incentive to work more closely together to treat a patient in the most affordable way.

Proponents of bundled payments say better coordinated care can reduce preventable medical errors and help patients heal without harm. For patients, bundled payments could potentially decrease costs for major surgeries or other expensive procedures by eliminating unnecessary and duplicate services.

"Patients don’t get care from just one person – it takes a team, and this initiative will help ensure the team is working together,” HHS Secretary Kathleen Sebelius said in a statement. "The Bundled Payments initiative will encourage doctors, nurses and specialists to coordinate care.”

In Medicare currently, hospitals, physicians and other clinicians who provide care for beneficiaries bill and are paid separately for their services. But this new initiative, headed by the Centers for Medicare and Medicaid Services, will bundle care for a package of services patients receive to treat a specific medical condition during a single hospital stay or recovery from that stay.

"From a patient perspective, bundled payments make sense. You want your doctors to collaborate more closely with your physical therapist, your pharmacist and your family caregivers,” CMS administrator Dr. Donald Berwick said in a statement.

The Bundled Payments initiative is being launched by the new Center for Medicare and Medicaid Innovation, created by the federal healthcare reform law to carry out the critical task of finding new and better ways to provide and pay for health care to a growing population of Medicare and Medicaid beneficiaries.

The Bundled Payments initiative is based on research and previous demonstration projects that suggest great potential for this model. For example, a Medicare heart bypass surgery bundled payment demonstration saved the program $42.3 million, or roughly 10 percent of expected costs, and saved patients $7.9 million in coinsurance while improving care and lowering hospital mortality.