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Exploring Bundled Payments


When we started the VBP Blog back in 2018, we broke down the building blocks in the continuum for Value-Based Payments. In the last blog, we revisited Alternative Payments and what had changed since our original analysis. In this one, we will be covering Bundled Payments and what they mean to Value-Based Payments.

older woman with flowers bundled payments

Bundled Payments Refresher

As a refresher, bundled payments – also known as episode-based payments (EPMs) – are an alternative payment method (APM) in which services are grouped together and a target price is calculated. This target price is the total allowable expenditure throughout an entire episode of care. A bundled price can be set and adjusted based on risk factors, age, and other considerations.  In bundled payments, the provider assumes the risk that the costs won’t go over the target price. They also share in the savings if the costs stay below the target while maintaining quality standards.

A great example of a bundled payment is pregnancy and labor. This episode of care includes pre-admission care such as OBGYN visits and prenatal medication, hospitalization during labor and delivery, and post-care visits. Other examples include joint replacement, UTI’s, and stroke.

Are Bundled Payments Effective?

In an analysis, researchers dug into 20 studies completed between 2016-2019 to determine the effectiveness of 3 federal bundled payment models: Acute Care Episode Demonstration, the Bundled Payments for Care Improvement (BPCI), and the Comprehensive Care for Joint Replacement (CJR). Six of the studies found a “significant decrease” – noting one was $1166 less – in episode payments for hip and knee replacements. These joint replacement surgeries have by far been the most effective episode of care for bundled payments, but the study did note that other lower-extremely joint replacements didn’t show the same level of effectiveness.

Professor Ezekiel Emanuel from the University of Pennsylvania co-authored the joint replacement study and says it’s “too early to adequately evaluate bundled payment models,” noting they are still in their early stages and could take more time to see savings.

Voluntary Model - [BPCI-A]

More than 1,000 hospitals and physician group practices remain in the Bundled Payment for Care Improvement Advanced (BPCI-A) voluntary model. The current participants must decide if they want to stay in the program for 2021, despite some less-than-ideal results for some during their second year. However, the new COVID-19-related flexibilities on performance measurement give these providers more options moving forward. These options include:

  1. Removing all upside and downside risk.
  2. Removing just COVID-19 patients from calculations.
  3. Continuing participation as usual.

This Fall the providers are expected to make their decisions as to continuing the program in 2021.

CMS New Guidance on Bundled Payments

In September of 2020, the Centers for Medicare & Medicaid Services (CMS) issued new guidance on value-based care strategies to state Medicaid directors. According to the CMS State Medicaid Directors Letter, “The guidance is designed to ensure that this same commitment [for current 61.7 million enrollees] can be made at the state level through Medicaid with its nearly 74 million beneficiaries.” The overarching goal is to better align health care provider incentives across payer types, moving the U.S. healthcare system toward a value-based care methodology.

The guidance includes key lessons learned over the past few years and includes a toolkit of available federal authorities for states to adopt innovative payment reform efforts within their individual Medicaid Programs. The advancement of quality-over-quantity care in Medicaid is imperative for a strong system, particularly when battling unexpected challenges like COVID-19.


Bundled payments are still a work in progress as an alternative payment method. With a focus on episode conditions such as joint replacements, there has been a lot of success in lowering costs while delivering higher levels of care. Certified Community Behavioral Health Clinics (CCBHCs) offer bundled payments and other APMs for behavioral health and mental health alternatives as well. As more providers join in on bundled payments, there will be more opportunities for cost savings and higher quality care.

Advocate's Perspective

Bundled payments allow for a higher alignment with whole-person care to come to the forefront. There are opportunities for providers to take on minimal risk, especially with CMS’ new flexible guidelines. COVID-19 has exposed a unique challenge that U.S. healthcare can learn from and be more prepared with more VBP programs in place.


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About the Author

Fady Sahhar brings over 30 years of senior management experience working with major multinational companies including Sara Lee, Mobil Oil, Tenneco Packaging, Pactiv, Progressive Insurance, Transitions Optical, PPG Industries and Essilor (France).

His corporate responsibilities included new product development, strategic planning, marketing management, and global sales. He has developed a number of global communications networks, launched products in over 45 countries, and managed a number of branded patented products.

About the Co-Author

Mandy Sahhar provides experience in digital marketing, event management, and business development. Her background has allowed her to get in on the ground floor of marketing efforts including website design, content marketing, and trade show planning. Through her modern approach, she focuses on bringing businesses into the new digital age of marketing through unique approaches and focused content creation. With a passion for communications, she can bring a fresh perspective to an ever-changing industry. Mandy has an MBA with a marketing concentration from Canisius College.