Bundled Payments: What Healthcare Providers Need to Know

As the healthcare industry continues to shift toward value-based care, providers are integrating new models for revenue cycle management. This includes alternative payment methods like bundled payments.

Bundled payments is a value-based method for reimbursement based on a single, comprehensive payment that accounts for an entire period of care. As fee-for-service payments slowly disappear, more health systems are embracing bundled payments while maintaining optimal care quality.

Still, it is not always easy for providers to deliver optimal care while keeping costs low. As providers look to implement bundled payments, they must first understand the basics of this episodic payment structure—including the main challenges and strategies for success.

Understanding Bundled Payments

At a basic level, a bundled payment model means providers are paid for all services a patient receives during a single episode of care. An episode of care is defined in two parts: care delivered during the treatment of a certain condition, and/or care delivered within a certain period of time.

For instance, if a patient has shoulder surgery, the payer would typically reimburse the surgeon, health system and anesthesiologist for their separate roles in delivering the service. With a bundled payment model, however, the payer is responsible for a set price for the episode. This price is usually based on the health system’s historical costs for the service.

Unlike other alternative payment models like capitation or accountable care organizations (ACOs), bundled payments place financial and clinical responsibility on providers for an individual’s period of care.

In other words, if the total cost of care is below the bundled payment amount, providers will profit. But if the costs exceed the bundled payment reimbursement, providers are responsible for the overage.

Key Challenges of Bundled Payments

A major challenge of offering a bundled payment model for senior providers is the data required to determine pricing. Some providers don’t have a comprehensive data collection or reporting system in place, affecting the model’s ability to improve cost efficiencies. Without these tools, it’s difficult to gauge whether bundled payments augment quality of care and service outcomes.

Another challenge is managing patient care costs that may be out of a provider’s control. For instance, using bundled payments for medication adherence or an accident at home is inappropriate, as providers cannot control factors influencing costs. These unforeseeable situations ultimately jeopardize a provider’s ability to come in beneath the payment cap, resulting in overages.

Strategies for Success

A key strategy for success with bundled payments is to prioritize good communication among the various groups involved in the reimbursement process.

To avoid expensive adverse events, coordinate care so patients are treated optimally during each phase of their episode of care. A collective understanding of the payment and care goals is critical to managing costs throughout the episode and should be done from the start.

Providers should also focus on mitigating financial risk based on a patient’s needs throughout an episode of care. Patients who are more likely to have poor or adverse outcomes will require a greater allocation of resources. Predicting which patient’s needs will likely exceed the set price of care is important to controlling costs.

Bundled payments could play a key role as health systems aim to improve care quality. The resulting lower health care costs can lead to better outcomes for payers, providers and patients over the long term.

That said, implementing such a system requires careful consideration of costs. Consult with your healthcare CPA if you need help with establishing and coordinating a bundled payments model.

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