Bundled Payments: Everything You Need to Know

Bundled payments are a form of Alternative Payment Models (APM). It refers to the compensation, in which the payment is made for a single episode of medical care. This means that the health care facilities are being paid in a single payment for all the services received. For instance, in treatment, the payer would like to compensate the amount after every appointment. 

But in the bundled payment model, they can pay the whole amount together, using the set amount for care. And if the amount utilized by the service providers is less than what was paid, then the payer can keep the change. Hence, there are some sorts of financial risks involved in this process. At the same time, there are many benefits if the payer adheres to these bundled payments, as seen in most cases. Those who use these bundles and enjoy the additional facilities provided by the hospital are off to home facilities much sooner.

Challenges Involved:

There are many challenges involved in the process of bundled payment, including:

  • The managing of costs is not in control of the payer/provider. 
  • There are certain situations in which the use of bundled payment seems slightly inappropriate.
  • As every patient is different from each other and has a unique body type, the severity of the disease also differs. Hence, it is not the fault of the payer to not pay such a huge amount in a go. Charges can vary largely for the same disease based on the severity, so, in such cases, bundled payment is not considered a wise option.
  • Occasionally, it is not the reason, but it largely depends on the IT department and the technology available in the healthcare system. Having a proper technological backup can help in cost efficiencies.

What is an Episode of Care?

An episode of care involves all the reimbursement of a patient for a particular disease or procedure. This is generally done for patients with higher risks. The amount is generally kept higher considering all the risks and extra amount required. After the treatment, if the amount used is less than paid, it is returned to the payer.

Following procedures may require the use of bundled amounts:

  • Delivery, post-labor facilities, nursing facilities
  • Pacemaker
  • Congestive heart failure
  • Stroke
  • Sepsis
  • UTI, etc.

These are ascertained to the payer while considering the age factors, the severity of disease, and other expenses.

Effect of BPCI (Bundle Payment of Care Improvement) in Traditional Methods

BPCI refers to bundled payments for care improvement. In the traditional FFS methods, the payers used to pay for each service the doctors and staff provided. But in modern practices, the provider pays the whole amount once as per the bundle applicable. 

In the year 2020, 1000 hospitals and 700 physicians engaged in the voluntary Medicare bundled payment program. Previously in September, the Centers for Medicare and Medicaid Services (CMS) reported that it would antedate in making bundled payments mandatory in a few years.

When a person requires any medical help, the service providers call it an episode of care. In this episode, many providers might be involved. But only one group or organization is responsible for coordinating the bundles. The various service providers include:

  • Physicians
  • Hospitals
  • Nursing facilities 
  • Rehabilitation facilities for the in-patients
  • Healthcare facilities at home
  • Long-term hospital care programs

Advantages of BPCI:

  • Medicare observed that the fee for services (FFS) payments for lab testing are quite less. Whereas the overall spending at hospitals is increased as it includes the reward for hospitals for the lower costs.
  • Fewer people get discharged to skilled nursing staff facilities from acute care hospitals.
  • This program does not target readmission to the emergency wards visits.
  • The quality of the treatment remains consistent and similar to all the patients, whether they are vulnerable or not.
  • People who stayed under the supervision of nursing staff had to stay less at the hospital and continue in-house care.

Disadvantages of BCPI:

  • Changes might be required in the bundles after the completion of a certain episode. But this change might be difficult in a computerized system.
  • This program does not count and address the amount that is paid indirectly. 
  • Few items are not added in the bundled payment structure, as urgent medications are required.
  • The technological changes might slow the process of keeping the systems up to date.
  • Physicians and doctors might not contribute to reducing the costs of the treatment.

Models of Bundled Payments

There are four types of BPCI (bundled payments for care improvement) models available. They are as discussed below:

  • Model – 01

This model refers to Acute care at a hospital stay. The amount paid by Medicare to hospitals is hinged on the inpatient prospective payment system. Appropriate payment rates are used in the original Medicare program. Medicare pays the doctors and service providers separately under the Medicare Physician Fee Schedule. The awardees for the first model who have participated in BPCI episodes for all ms-Diagnosis Related Groups (DRG) become eligible for the beneficiaries in the procedure. Nearly 40-50% of the health care providers achieve 5% more savings with bundled payments. 

Model 2, 3, and 4 – (refers to a two-phased implementation)

These bundle amounts and payments for BPCI ingenuity encompass two phases for models 2, 3, and 4th. And the first stage states “the preparation period”. It refers to the initial period of the initiative undertaken. In this phase, the CMS and the participants are prepared for the implementation. 

  • Model 2: Also known as acute and post-acute care episodes

Model 2 is also known as retrospective bundled payments. It refers to the procedure where actual expenditure or amount is collected after an episode. And within this model, Medicare resumes paying a fee for services (FFS) payments to the service providers and suppliers who have appointed services in the episode of model 2 as beneficiaries. The reimbursement for the patient’s episode is later collected by the payer (in opposition to the bundled payment), which the CMS determines. 

  • Model 3: Post-acute care only

This model is also a part of the retrospective bundles arrangement, where the expenditures are reconciled against the aspiration of the episode of care. In this model, too, Medicare continues to make fee-for-service (FFS) payments to the service providers who demonstrated their services in the episodes involved in model 3. 

The total amount for the expenditure is collected against the bundle’s payment expenditures. CMS makes payments reflecting the performance compared to the targeted price at the beginning of the episode. 

  • Model 4: Anticipated acute care hospital stay only

In this mode, there’s only a single bundle determined by CMS. This bundle is a prospectively determined bundled payment that encompasses all the services offered by the healthcare authority. It comprises the services by physicians, hospital and other specialists and staff during the episode of care, which lasts in the whole stay at the hospital. 


Bundled payments are of great importance. They include reimbursement of the FFS in one installment for a certain episode of care, where the amount is decided to be higher, including all the expected risks. After the diagnosis, the amount shall be returned to the payer or enjoyed by the hospital. The episode of the care refers to the duration of treatment for a certain disease that has additional benefits. It also includes at-home care for the duration discussed.

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