St. Joseph`s Hospital in Denver organized an Acute Episode Demonstration Project (ACE) in 2003 managed by Deirdre Baggot. Based on the Medicare Prescription Drug Improvement and Modernization Act, the ACE demonstration consolidated Medicare Parts A and B for episodes of care.  Critics argue that it will be difficult to negotiate lump sum payments under all conditions and reach agreement on the definition of a disease, the extent of the care cycle and the benefits included. This objection is, at best, weak. A reasonable number of diseases account for a large portion of health care costs, and we can start there and grow over time. The care required for most diseases is well established and experience in defining clusters is accumulating rapidly. Commercial methods and instruments, such as the use of comprehensive claims data sets, are widely used. . . .