Most often, for reimbursement to occur, a provider delivers a specific service to a patient, submits a claim to the insurance payer, and receives payment. In other situations, the payer provides a single payment for a group of services provided at the same time. This is called a bundled payment, in the most simplistic of examples. Continue reading to learn more about the overlooked details on bundled payments and how it impacts the way you manage your healthcare practice’s payment processes.

What Is a Bundled Payment in Healthcare?

A bundled payment is a single payment that covers the combined cost of eligible services and supplies. It centers on a fixed-price agreement for predefined services expected to be necessary for the patient. It often includes all pre-treatment care, the procedure itself, and follow-up care, along with any supplies and services provided as part of that care.

Bundled payments may include charges from multiple providers that care for the patient during an episode of care. An episode of care refers to a set of services and all supplies necessary to treat a medical condition. It follows a defined length of time that varies, for example, such as providing care for a surgical procedure and follow-up care for 30 days.

Consider a patient who needs knee replacement surgery. The payer establishes a pre-defined bundled payment that could include the initial testing and screenings, the actual surgery, medications, and after-procedure care, along with follow-up care for 60 days. Ideally, as a pre-defined payment, the bundled payment will provide enough compensation to the provider to cover all costs associated with the patient’s care for that procedure or timeframe. If not, the provider assumes some financial risk when the costs exceed the fixed price.

Fee-For-Service vs Bundled Payments

Let’s take a closer look at options outside of bundled payments. Many providers receive a traditional fee-for-service (FFS) for the services they provide to the patient. This means each provider involved is paid individually and by service. 

However, the Centers for Medicare and Medicaid Services (CMS) encourages bundled payments because they help providers think about care in a more holistic, overarching way. Instead of focusing on an individual service, they focus on delivering care for a condition that ultimately aims to improve the patient experience.

Another advantage of providing bundled care instead of a traditional FFS is that it encourages providers to facilitate more efficient care and quality services instead of looking at it just as bringing patients back for additional appointments. Eliminating services that do not directly contribute to a positive patient outcome and increasing efficiency in service delivery drives down costs for providers and patients alike.

Types of Bundled Care Payments

There are two forms of payment bundling in healthcare specifically. That is, the bundled payment may be calculated retrospectively or prospectively. In both situations, the healthcare provider must manage the costs. Ultimately, they benefit when they achieve better outcomes for patients.

Retrospective bundled payments

The providers involved in an episode of care receive payments for each service they provide separately, much like FFS. However, the total amount paid is then compared against a target value for the services, supplies, and other costs.

For example:

A patient undergoes hip replacement surgery.

• Each provider bills separately:

  • The surgeon bills for the procedure.

  • The anesthesiologist bills for anesthesia.

  • The hospital bills for the inpatient stay.

  • The physical therapist bills for post-op rehab.

After all services are billed and paid (similar to fee-for-service), the payer evaluates the total cost of the entire episode of care (e.g., 90 days).

If the total cost is below a pre-set target amount (say, $30,000), the savings may be shared among providers as a bonus.

If it’s above the target, providers may have to repay the excess or receive a reduced bonus.

Prospective bundled payments

A designated provider, such as a hospital or health system, will receive a single payment to compensate all eligible providers for services and supplies delivered to the patient during the episode of care. This payment is based on a pre-determined target value for that care.

For example:

A gastroenterology practice participates in a prospective bundled payment model for patients undergoing colonoscopy with polyp removal.

• The payer provides a single, upfront payment of $2,500 to the gastroenterology group for the full episode of care.

• This amount is intended to cover:

  • Pre-procedure consultation

  • The colonoscopy and polyp removal

  • Pathology services

  • Post-procedure follow-up care and patient instructions

The practice is responsible for managing all included services and coordinating with any outside labs or providers. If they deliver efficient, quality care within that $2,500, they retain any savings. If total costs exceed that amount, they absorb the financial risk.

Examples of Bundled Payment Programs

To provide some clarity, consider these bundled payment programs and how they may apply to the way you charge clients for care.

Bundled Payments for Care Improvement – Advanced (BPCI-A)

BPCI-A is a voluntary Medicare program incentivizes providers to reduce spending and improve quality of care by bundling care for a clinical episode into one payment. It includes all of the follow-up care provided to a patient after a hospital discharge for 90 days and also applies to outpatient procedures.

Enhancing Oncology Model (EOM)

As another voluntary Medicare program incentive, the EOM works to improve the coordination of all a cancer patient’s healthcare and supportive needs by bundling costs together. It includes a detailed care plan developed to provide patients with services ranging from prognosis, treatment options, and psychological needs.

Why Payment Bundling in Healthcare Matters

What are the provider benefits of bundled payment in healthcare? A bundled care payment seems ideal only if the services provided are valued at or below the total cost the provider faces. However, there are some key advantages to using this payment model.

• Better collaboration: When the bundled payment model is employed in multi-provider scenarios, patients and medical teams can collaborate more effectively.
• Long-term focus on care: Aim to reduce the need for as many visits as possible, which requires providers to provide the best level of service early on. This minimizes the risks associated with more frequent care visits.
• Efficiency in communication: To work well, providers must have an efficient care delivery process that improves care coordination, such as using care navigators to help patients understand what to expect and help them follow directions.
• Data sharing: Across all providers in healthcare, bundled payments are also critical to maximizing efficiency and keeping costs in line with objectives.

Bundled payments for healthcare are likely to continue. For healthcare providers, this means it is critical to ensure accuracy in billing and careful cost management to avoid being in the red.

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