Skip to main content

The Current State of Bundled Payments

July/August 2010, Vol 3, No 4 - Industry Trends
Download PDF

Much attention is now focused on bundled payment as a promising mechanism of healthcare reform. Early signs point to the potential of this initiative to reduce fragmentation in healthcare delivery, while improving quality and addressing spiraling costs. Bundled payment requires the involved parties to agree on a defined package of care and services for a particular condition; this treatment episode is then paid in a single payment that is apportioned among multiple providers (both professionals and facilities) across many settings. This bundled payment—or “episode-based payment”—is currently the subject of ongoing pilot projects across the United States.

Payer and provider organizations can learn from these experiments as they shape their own programs and then bring them to scale.

Successful Experiments
One of the earliest experiments in bundled payment began with a Medicare pilot program in the early 1990s for a handful of surgical procedures. Within the next decade, global payments became more widely used for certain procedures; obstetrics may be the best-known, with a single payment for prenatal and postdelivery professional services and often a separate diagnosis-related group payment to the hospital for facility services.

Episode-based payment expands the scope of global payment into a single payment shared by multiple providers as a means to encourage care coordination. Several successful experiments have been seen primarily in staff models or integrated healthcare settings.

Geisinger’s ProvenCare. The most notable example is the ProvenCare program at Geisinger Health System in Pennsylvania, which accepts a single payment for several procedures, including elective coronary artery bypass graft (CABG), percutaneous transluminal coronary angioplasty, total hip replacement, cataract surgery, and low back pain treatment.1 Using evidence-based medicine and other input from professional associations, Geisinger defined critical patient care steps that must be accomplished in each clearly defined bundle.1,2 To ensure quality, physician payment may be tied, in part, to adherence to process-of-care performance measures.3 Results at Geisinger have included reduced lengths of stay, lower readmission rates, and outcomes that exceed national averages.1

Medicare. Recently, the Centers for Medicare & Medicaid Services launched the Acute Care Episode Demonstration project at 5 sites in 4 states to test bundled payments for Medicare Part A (for inpatient hospital care, skilled nursing care, and hospice care) and Medicare Part B (includes doctors’ fees and outpatient hospital visits) for 9 orthopedic and 28 cardiac inpatient surgical services and procedures. A portion of the cost-savings is designated to be shared with Medicare beneficiaries. Results are expected after 2013.4
Prometheus. The Prometheus Payment model, sponsored largely by the Robert Wood Johnson Foundation, is the subject of ongoing pilot projects. The model takes into account 3 components in determining payment5:

  • Evidence-informed base payment
  • Patient-specific severity adjustment
  • Allowance for “potentially avoidable complications.”

This last element is essential in most current bundled payment scenarios. If complications are avoided, the providers may be paid more than they would have received under conventional fee-for-service, with the ultimate aim of reducing complications and overall cost. Although this retrospective approach limits the opportunity to influence provider behavior, the Prometheus model continues to provide an important example as experiments in bundled payment move forward.
Lessons from Early Initiatives: Payer-Provider Collaboration, and Transparency
A key lesson learned from these early initiatives is that clinicians must play a leading role in decision-making—physicians need to be involved in defining the bundle, in managing care, and in defining the responsibility of each provider involved.
Transparency is also critical. This requires a fundamental cultural shift away from adversarial relationships between payers and providers. Bundled payments should represent a true alignment of incentives among the payer, provider, and the patient. All providers and patients must have access to what they can expect with a bundled payment, what the bundle includes and excludes, who the participants are, and how it all works. Everyone needs to know what they stand to gain through better coordination and quality of care.
To recruit members, plans may need to remind them that providers involved in any bundled payment initiative typically are those who meet quality standards and are committed to working collaboratively to achieve the best patient outcomes. Patients also may be expected to play a role, as they do in the Geisinger program, by signing a “patient compact” that they will comply with care recommendations.

Tools and Processes Require Automation
Most experiments in bundled payments thus far have occurred in staff model organizations (in which the physicians work for the organization), prompting the questions of how and whether these successes can be adapted in more open networks. The answer lies in automation, which can create a virtual system to achieve similar results. Automation will be essential to bring to scale the experiments that now rely on manual processes during their pilot phases.
Contract management, claim processing, and waste and abuse functions must be integrated to support new payment frameworks. This requires:

  • Episodes of care that are defined in such a way that logic can be built and applied in an automated fashion
  • Dynamic contracting that incorporates episodes of care terms and definitions
  • Systems that automatically convert contract terms to terms in the payment system
  • Claims processing technology that can look across facility and professional claims, and across time, to associate all services that should be included or excluded as part of an episode of care; slow response may result in inappropriate payment, which could jeopardize payer confidence
  • Autoadjudication of complex contracts with multiple payment arrangements
  • The ability to apply clinical knowledge to claim payment decisions so that payments will be defensible to providers
  • Waste and abuse systems that can detect new means of inappropriate optimization of payment that may spring up in response to a new payment model
  • Interoperability between payment and quality data
  • Systems with the flexibility to adapt as new payment mechanisms evolve
  • Transparency among all stakeholders.

Time Is Ripe to Start a Pilot Project
A good starting point for organizations that wish to design a bundled payment project is to focus on what you, or your providers, do best, and to create partnerships with those providers. Hospitals are probably in the best position to spearhead quality improvements around bundled payments by creating incentives for care coordination.
The areas that are well-suited for initial ventures into bundled payment are high-complexity procedures that are common, well-defined, and have a clear standard of care, such as joint replacement, CABG, and therapeutic cardiac catheterization. Measurable quality goals, such as shorter hospital stays or length of time to ambulation, should be in place from the outset. The ultimate focus should always be on the delivery of quality care. An additional, intriguing way to look at success would be whether claim appeals decrease.
Although government programs are investigating how to integrate bundled payment into Medicare, the industry does not need to stand by and wait for those results. Collaboration among payers, providers, and patients will bring them closer to their shared goals of reducing cost and improving quality. Organizations that work collaboratively to innovate, and have the tools to do so, will lead the way.

Geisinger Health System. About ProvenCare. Accessed July 8, 2010.
Agency for Healthcare Research and Quality. Innovation profile: use of clinical “bundles,” fixed pricing, and patient compact enhances adherence with guidelines and improves outcomes in bypass surgery, diabetes, and other areas. May 25, 2009. Accessed July 8, 2010.
Casale AS, Paulus RA, Selna MJ, et al. “ProvenCareSM”: a provider-driven payfor-performance program for acute episodic cardiac surgical care. Ann Surg. 2007;246:613-621.
Centers for Medicare & Medicaid Services. Medicare news: CMS announces sites for a demonstration to encourage greater collaboration and improve quality using bundled hospital payments. January 6, 2009. Accessed July 8, 2010.

de Brantes F, Rosenthal MB, Painter M. Building a bridge from fragmentation to accountability—the Prometheus Payment model. N Engl J Med. 2009;361:1033-1036. Epub 2009 Aug 19.

Related Items
Global Issues Driving US Healthcare Trends in 2021 and 2022
F. Randy Vogenberg, PhD, FASHP, John Santilli, MBA
Web Exclusives published on June 22, 2021 in Industry Trends
Return to Business During a Pandemic: Market Collaboration and Health Benefit Trends
F. Randy Vogenberg, PhD, FASHP
June 2020 Vol 13, No 3 published on July 1, 2020 in Industry Trends
Preparing for Healthcare After COVID-19: New Challenges Facing Payers
Wayne Kuznar
June 2020 Vol 13, No 3 published on July 1, 2020 in Industry Trends
Key Trends in Healthcare for 2020 and Beyond
F. Randy Vogenberg, PhD, FASHP, John Santilli, MBA
November 2019 Vol 12, No 7 published on December 5, 2019 in Industry Trends
Value-Based Agreements in Healthcare: Willingness versus Ability
Gary Branning, MBA, Michael Lynch, CPA, MBA, Kathryn Hayes, BA
September 2019 Vol 12, No 5 published on September 17, 2019 in Industry Trends
Last modified: August 30, 2021