Cost Savings and Physician Responses to Global Bundled Payments for Medicare Heart Bypass Surgery

In 1991, the Health Care Financing Administration (HCFA) began the Medicare Participating Heart Bypass Center Demonstration, in which hospitals and physicians are paid a single negotiated global price for all inpatient care for heart bypass patients. During the first 27 months of the demonstration, the Government and beneficiaries together saved more than $17 million on bypass surgery in four participating institutions. Average total cost per case fell in three of the four hospitals during the 1990-93 period as the alignment of physician and hospital incentives resulted in physicians changing their practice patterns to shorten stays and reduce costs.