Blog | Healthcare

Bundled Payments - A Prix Fixe Menu for Healthcare

Bundled payments are a way of spreading healthcare costs & risks while increasing accountability. Learn more about bundled payments in healthcare.

JULY 24, 2017

The concept for bundled payments, which has been around since the 1980s, is a simple way of spreading healthcare costs and risk, while increasing accountability. It reimburses health providers based on expected costs for a clinically defined episode of care. For instance, a bundled payment for joint replacement might cover surgery, post-op hospital care and outpatient rehab services.

A bundled payment is a method of billing for healthcare services that groups, or “bundles,” together all the services used to treat a particular medical episode. Contrast this to most medical billing that works on what is known as a fee-for-service model. This means you’re billed for each service you received. 

Compare this to the payment being shared, on a pre-agreed basis, with all the providers involved. Any surplus or cost overrun is also shared. It’s a system intended to improve coordination between physicians, hospitals, rehab facilities, and home care agencies. 

A bundled payment model bills by what’s called an “episode of care.” So, you’re billed for the entire treatment instead of each separate service. Instead of paying for each medication, procedure, and service, you’ll have a single payment for the total service. 

This model aims to save money without affecting the care you receive. Bundled payments are one of the alternative payment models (APMs) that Medicare encourages.

Fee for Service Versus Bundled Care

For example, during labor and delivery, a traditional fee-for-service model would bill the insurance company and you for each service. So, you might get a long bill that includes charges for:

  • the hospital stay 

  • doctor’s fees

  • intravenous (IV) fluids

  • epidurals or other medications used

  • delivery room charges

With a bundled payment, however, the hospital bills the insurance company and you for a single labor and delivery charge. The price for an episode is predetermined. This means it won’t go down if you end up needing fewer care services, but it also won’t go up if you end up needing more. This takes away many of the unpleasant billing surprises you’d find in your mailbox after a medical procedure.

When a provider uses a bundled payment method, each episode has a trigger that’ll allow them to bill for care for that episode over a set amount of time. So, in this example, the episode trigger would be you going into labor. 

A standard number of days of care would be accounted for under the bundled payment. You and the insurance company would then receive a bill with a single labor and delivery charge.

BPCI Aims to Fine Tune Bundled Care

The Center for Medicare and Medicaid Innovation Center developed the Bundled Care for Improvements Initiative (BPCI) in order to assess whether the bundled payment models tested resulted in improved patient care and lower costs to Medicare.

Under the BPCI initiative, organizations entered payment arrangements that include financial and performance accountability for episodes of care. These models aim to increase quality and care coordination at a lower cost to Medicare. BPCI Episode Initiators include acute care hospitals, skilled nursing facilities, physician group practices, home health agencies, inpatient rehabilitation facilities, and long-term care hospitals that trigger an episode of care.

Research has shown that bundled payments can align incentives for BPCI providers allowing them to work closely together across all specialties and settings.

The AMA Likes What They See

A report in the Journal of the American Medical Association suggested that expanding bundled payments would achieve the “Triple Aim” of better care for patients, reductions in Medicare payments, and increased profits/payments to hospitals and physicians. In particular, it advocated extending the duration of bundles, enabling them to embrace the full spectrum of acute and chronic care to support longer-term population health strategies.

What’s Next?

Of course, technology will play a central role in the adoption and administration of bundled care. For instance, critical to any expansion of bundled payment are robust data analytics programs. These systems, solutions and platforms will be adopted to provide data collection and track and improve bundled care as it moves closer to become the new gold standard of patient billing .

Ready to transform?

Modernize Hospital Business Operations, Stat.

Related Insights

# | #

#

#

Ready to transform?