Bundled Payments

Defining key terms:
Bundled Payment: A single payment for the combined cost of eligible services and supplies – like treatments, tests, and procedures – provided during a defined episode of care. This payment can cover multiple providers involved in the episode of care. Episode of Care: The set of services and supplies to treat a medical condition, for a defined length of time. For example, an episode of care might begin with hip replacement surgery and end 30 days after hospital discharge.

Defining key terms:

Bundled Payment: A single payment for the combined cost of eligible services and supplies – like treatments, tests, and procedures – provided during a defined episode of care. This payment can cover multiple providers involved in the episode of care.
Episode of Care: The set of services and supplies to treat a medical condition, for a defined length of time. For example, an episode of care might begin with hip replacement surgery and end 30 days after hospital discharge.

Bundled Payment in Care Delivery

Providers who receive traditional fee-for-service (FFS) payments are frequently paid for each individual service they deliver, for example, a blood test, a doctor’s visit, a procedure or hospital stay.

Bundled payments encourage providers to think holistically about how they deliver care for a condition to improve the quality of care and the experience for the patient across transitions. The CMS Innovation Center currently tests bundled payments for different types of episodes of care, including certain joint replacement surgeries and distinct medical events, such as heart attacks.

Services and supplies in an episode of care are grouped together into a single payment, allowing, providers to consider how the different elements of care interact with one another. Bundling can help providers discover ways to introduce efficiencies to achieve better outcomes for their patients at a lower cost.

Types of Bundled Payments

Bundled payments can be calculated retrospectively or prospectively. In both cases, providers are responsible for managing costs, and they benefit from achieving better outcomes, such as reducing avoidable hospital admissions and keeping more people at home and healthy.

Retrospective bundled payment: Individual providers involved in an episode of care receive payments for each service separately, similar to FFS; however, the total amount paid is compared against a target price for included services, supplies, and other items in the episode of care. If the total payments exceed the target price, the providers may owe back the difference. If total payments are lower than the target price, providers may receive an additional payment.

Prospective bundled payment: A designated provider (such as a hospital) receives a single, lump-sum payment to compensate providers for eligible services and supplies delivered by providers tied to an episode of care. The amount is based on a pre-determined target price for the episode of care. As with the retrospective bundled payment, providers may achieve losses or savings as compared to the target price.

Benefits of Bundling Payments

Research shows that bundled payments can promote better collaboration and care coordination across providers and health care settings such as hospitals and post-acute care services, including skilled nursing facilities and home health, which can improve patient outcomes and lower costs.

Providers who take part in bundled payment arrangements often make changes to help them better deliver care, such as:

Hiring care navigators who help patients (and their caregivers) to understand what to expect and assist them in following instructions from providers. Navigators may support seamless communication between the patient and the patient’s entire care team and help with filling prescriptions, scheduling appointments, or transitioning patients from hospital to home.
Establishing more efficient care delivery processes to enhance communication and improve care coordination among a patient’s providers, for example a surgeon, primary care doctor, and physical therapist.
Sharing data across providers so they can better work together to understand what approach will offer each patient the best outcome. Data may be shared in the form of electronic health records accessible to all of a patient’s providers.

How bundled payments can help patients: David’s experience

The following is a hypothetical example of bundled payment’s potential impact:

David is at high risk of heart attack and must have an artery replaced. The artery replacement starts a 30-day episode of care. His hospital is accountable for the quality and cost for the episode of care, including all the items and services to care for David beginning with the heart surgery and ending 30 days after David leaves the hospital. The bundled payment approach helps the hospital ensure that David has all he needs to support a positive health outcome.

The hospital knows that educating David about his procedure and recovery will reduce risk of complications, making for a smoother overall surgical experience. Therefore, the hospital connects David to a care navigator who helps him prepare for surgery and recovery. The care navigator talks through what to expect on the day of the procedure and provides instruction for how David will keep his wound clean after returning home and what medications he’ll be prescribed to manage pain and control blood pressure. The care navigator also supplies David with a list of cardiac rehabilitation programs whose patients experience fewer rehospitalizations and helps him book an initial appointment.

After the surgery, the hospital and care navigator follow up with David to monitor his recovery and ensure he’s adhering to his care plan. The hospital updates David’s primary care doctor on his surgery and recovery. When David’s cardiologist (heart specialist) enters test results or a newly prescribed medication into his electronic health record, an alert is automatically sent to his primary care doctor who can see any changes to his condition and care plan. After 30 days, the episode of care has ended. Since David’s providers have been coordinating his care, all records are available to his care team. David is aware of when he should next follow up with both his cardiologist and his primary care physician.

Additional Information

CMS Innovation Center models that test Bundled Payments:

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