The transformation of healthcare from volume-based to value-based mode has encouraged public and private payers to reform reimbursement models emphasizing on accountability for care quality and healthcare costs. Thanks to the ever-increasing healthcare costs, payers and providers are increasingly preferring bundled payments over fee-for-service (FFS) payment structures. (1,2)

Bundled payments, also known as episode payments/case rate/package pricing, are defined as, “the reimbursement of healthcare providers (HCPs), such as hospitals and physicians, on the basis of expected costs for clinically-defined episodes of care”. (3,4) Bundled payments are the alternative payment models (APMs), designed for paying multiple providers for coordinating the total amount of services required for a single, pre-defined episode of care. The model is already a popular method for encouraging value-based care without fully engaging providers in downside financial risk contracts.(1)

There are two types of bundles, viz. retrospective and prospective. A retrospective bundle combines a reconciled budget with the payer or “convener” as a financial integrator of the fees paid out instead of putting the responsibility upon one provider. This arrangement is created on an FFS system and is retrospective, since providers first receive their usual FFS payments, which is followed by the receipt of an additional payment after assessment of their total costs and savings. However, these cost assessments may take over a year to complete. Retrospective bundles comprise of the most prevalent bundled payment system, because they are easier to understand, administer, and execute.(2)

A prospective bundle pays a fixed price for a set of services covered in the bundle before rendering any or all of the services. An average cost per episode of care is assessed on the basis of historical data and/or regional costs and payment is delivered to providers when an episode is initiated, rather than waiting for its completion. Adjustments to payments are made taking into account other factors, such as outliers, excluded episodes, and so on. (2)

However, bundled payments are facing several challenges. Their implementation has led to alienation of providers as they have often cited concerns over both the process by which costs for episodes are determined and the ability for smaller healthcare organisations to comply with the process. Having said that, there is still a chance for HCPs to lower their costs and improve the standard of care. Yet, success with bundled payments calls for close coordination between multiple providers over a fluctuating timespan, something that many providers struggle with. To overcome this, the organisations implementing bundled payments must identify the eligibility of recipients through monitoring and tracking. For this, specific tools can be integrated; for e.g., a supporting IT environment, patient tracking, care process redesign, and physician engagement.(2)

Some examples of the existing bundled payment systems are the Bundled Payments for Care Improvement (BPCI) initiative (2013), the Comprehensive Care for Joint Replacement (CJR) model (2016), and a recently launched and BPCI Advanced initiative (2018) – all of which have been introduced by the Center for Medicare and Medicaid Services (CMS). (5) An example of an area where bundled payment models are showing promising results is the joint replacement procedures. Several providers have reported cost savings, predominantly in post-acute care costs, under the CJR payment bundle.(5)  According to a recent JAMA study (2017), CJR has saved US taxpayers $5,577 or 20.8% per joint replacement care episode for 3,942 patients. (6)

An increasing number of healthcare leaders are exploring the potential for bundled payments for reward, thanks to: a) the promise of the early BPCI bundles, b) the government’s recently renewed commitment to these models, and c) the combined knowledge gained from early pilots. In fact, evidence suggests that payers are predicting bundled payments to account for 17% of payments by the year 2021. (7) Moreover, large ­employers, crushed by high insurance costs, are directly negotiating bundle pricing. These are the indicators of bundled payments being a key APM in value-based care strategies.(5)

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  1. LaPointe J. Understanding the basics of bundled payments in healthcare. July, 2016.
  2. Guldin M. What are bundled payments and are they here to stay? December, 2018.
  3. Miller J. Package pricing: Geisinger’s new model holds the promise of aligning payment with optimal care”. Managed Healthcare Executive. June, 2008.
  4. Satin DJ, Miles J. Performance-based bundled payments: potential benefits and burdens. Minn Med 2009; 92(10):33–5.
  5. NEJM Catalyst. What are bundled payments? February, 2018.
  6. Navathe AS, Troxel AB, Liao JM, et al. Cost of joint replacement using bundled payment models. JAMA Intern Med 2017; 177(2):214-222.
  7. Value-based payment hits tipping point. 2016.

Written by: Ms. Tanvi Laghate

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