Bundled Payments

An initiative that addresses payments in healthcare systems is on the rise; the Bundled Payments for Care Improvement Initiative (“BCPI”) began in 2013 and has grown to have an estimated 1,500 participants. Under the bundled payments system, reimbursements for multiple providers are bundled into a single payment that covers all of the services involved in a patient’s care. This reimbursement method will align incentives for providers, hospitals, post-acute care providers, physicians, and other practitioners, allowing them to work together. According to the American Hospital Association, the goal of bundled payments is to improve population health, boost the patient care experience, and reduce cost. In comparison to fee-for-service, which has been known to incentivize providers to deliver unnecessary and low-value care, bundled payments allow coordination of care, higher quality, and efficiency.

A bundled payment covers services delivered by two or more providers during a single episode of care. For example, after a procedure, rather than making a payment to the hospital, another payment to the surgeon, and then a final payment to the anesthesiologist, the payer combines the payments into one. An entity may receive the bundled payment and apportion the payment among the participating providers. Centers for Medicare and Medicaid Services identify four models to the bundled payments:

• Model 1: Incorporates only inpatient stay in an acute care hospital. Medicare pays hospitals a discounted amount based on the payment rates established. This also allows participants to enter into gainsharing arrangements with physicians.

• Model 2: Includes physician and post-discharge services, as well as inpatient hospitalization for up to 90 days. Medicare pays participants their expected payments with a negotiated discount.

• Model 3: Only post-discharge services are included in this model. Medicare pays participants their expected payments with a negotiated discount.

• Model 4: Consists of inpatient hospitalization, physician, and related readmission services. Medicare pays a determined bundled payment to the hospital that encompasses all services rendered.

Healthcare systems should be aware and have an understanding of the bundled payments initiative as it is a new five-year pilot program reform under the Affordable Care Act. The hope is to replace the previous fee-for-service model which has been found to be one of the leading issues that is driving up healthcare costs. According to the American Hospital Association, 25 to 30% of hospital procedures are wasteful, redundant, and unnecessary. Bundled payments discourage this unnecessary care which can be beneficial for both the patients and hospital systems.
Successful bundled payment initiatives have provided evidence of cost reduction and improved healthcare quality. According to the Health Affairs Organization, CaroMont Health and Blue Cross Blue Shield (“BCBS”) of North Carolina implemented a bundled payment system for knee replacements and in one year, BCBS saved an estimated 8-10% cost per episode. Geisinger Health System implemented a bundled payment for Coronary Artery Bypass Grafting reimbursement which resulted in a 10% reduction in readmission rates, shorter length of stay, and lower hospital charges.
BPCI is a growing form of value-based payments that hopes to improve patient health by delivering high quality, efficiency, and low cost care. This new system will benefit patients, providers, and hospital systems which is why it is beneficial for hospitals to be aware of this initiative for future implementation.

1. Bundled Payment: AHA Research Synthesis Report. (2012, May). Retrieved September 21, 2016, from http://www.aha.org/research/cor/content/BundledPayment.pdf

2. Bundled Payments. (n.d.). Retrieved September 21, 2016, from http://www.ama-assn.org/ama/pub/advocacy/state-advocacy-arc/state-advocacy-campaigns/private-payer-reform/state-based-payment-reform/evaluating-payment-options/bundled-payments.page

3. DelBanco, S. (2014, July 2). The Payment Reform Landscape: Bundled Payment. Retrieved September 21, 2016, from http://healthaffairs.org/blog/2014/07/02/the-payment-reform-landscape-bundled-payment/

4. Moving Towards Bundled Payment. (January 13). Retrieved September 21, 2016, from http://www.aha.org/content/13/13jan-bundlingissbrief.pdf