Understanding the Basics of Bundled Payments in Healthcare

What are bundled payments in healthcare?

Under a bundled payment model, providers and healthcare facilities are paid a single payment for all the services performed to treat a patient undergoing a specific episode of care. An episode of care is the care delivery process for a certain condition or care delivered within a defined period of time.

For example, if a patient undergoes surgery, payers would traditionally reimburse the hospital, surgeon, and anesthesiologist separately for their part in the treatment. Through a bundled payment model, the payer collectively reimburses the providers involved, using a set price for the episode of care, which is usually based on historical costs.

Providers who exceed the pre-arranged reimbursement for the episode bear the financial responsibility for the remaining costs. This is intended to encourage standardized, cost-effective care decisions.

This means that some financial risk is involved with bundled payment models, although much less than other alternative payment models, such as accountable care organizations (ACOs). If the cost of the episode is less than the bundled payment set price, then providers can keep the difference. However, if the cost is more, participating parties lose the difference.

In some arrangements, payers reimburse one of the entities involved in the care delivery process and that party apportions the payment among the providers. In other cases, payers reimburse each participating provider separately, adjusting the payment for each one so it does not exceed the set price.

How can providers participate in bundled payment models?

CMS has taken the lead in developing several bundled payment models, including the Medicare Bundled Payment for Care Improvement (BCPI) Advanced Model and the Comprehensive Care for Joint Replacement (CJR) Model.

The BPCI Initiative preceded the BPCI Advanced Model in 2013 and aimed to improve care coordination. The initiative included four tracks; in the first track, hospitals were paid for an inpatient acute care stay, while participants in the second and third models were reimbursed on a retrospective bundled payment system. The fourth track made a single prospective payment to hospitals for acute care stays.

CMS launched the BPCI Advanced Model in October 2018, which will end in December 2025. Around 280 providers currently participate in the model.

The voluntary model qualifies as an Advanced Alternative Payment Model under the Quality Payment Program (QPP) and prioritizes care delivery, provider engagement, patient and caregiver engagement, data analysis, and financial accountability.

The CJR Model was designed to improve care for Medicare beneficiaries undergoing hip and knee replacements in inpatient or outpatient settings and total ankle replacements performed in inpatient settings. The model offers hospitals bundled payments to encourage hospitals, physicians, and post-acute care providers to work together to improve care coordination. The model began in April 2016 and is set to end at the end of 2024.

What are the challenges associated with bundled payments?

One of the major challenges with bundled payments is managing costs for a patient’s treatment that may be out of the provider’s control, such as medication adherence or other patient behaviors that could lead to adverse events.

In addition, patients may have different comorbidities, requiring them to receive expensive healthcare services. If bundled payment models do not accurately account for patient risk, these varying levels of complexity may create financial challenges for providers.

Some providers also face technological challenges with the bundled payment models, as they typically require advanced infrastructure for data analytics, billing, and care coordination. Older health IT and EHR systems may not have comprehensive reporting or data collection functions that allow smooth data-sharing between providers and other stakeholders.

Patient engagement and provider collaboration are also two critical aspects of bundled payment models that participants may struggle with. Providers across different settings must work together to deliver quality care, but varying organizational structures may pose a challenge. Meanwhile, patients who do not comply with treatment plans or skip follow-up appointments can limit the effectiveness of bundled payment models.

How do providers succeed in the bundled payments model?

Addressing a top challenge, one of the keys to success with the bundled payment model is increasing provider communication. Providers must execute efficient care coordination strategies to ensure patients are treated optimally at every level of the episode to avoid expensive adverse events.

Establishing a clear definition of an episode of care will make it easier for providers to manage complex cases. Additionally, developing risk stratification methods can also help providers predict what patients’ needs will be throughout the episode of care. This way, they can allocate the necessary resources to mitigate risk.

Providers should create clinical protocols to standardize care processes, implement best practices to reduce variations in treatment plans, and establish key performance indicators to measure performance based on cost and quality.

Keeping on top of policy and regulation changes related to bundled payments and educating staff about the alternative payment model can also help providers succeed.