Value-Based Care Models: Bundled Payments in Healthcare

In the healthcare industry, the shift toward value-based care models has made slow but steady progress in the past several years. Public and private payers are transitioning from traditional fee-for-service models to alternative payment models in response to a growing emphasis on value-based care. The Centers for Medicare & Medicaid Services (CMS) reports that 40% of payments now run through alternative payment models (APMs), with up to 90% of payments tied to value outcomes. Commercial payers are also now leveraging shared savings, the total cost of care, and bundled payment models to drive value to their members. Today, we’ll be looking at what bundled payments are, some examples of bundled payment models, and the benefits of payment bundling for healthcare systems.

# What are Bundled Payments in Healthcare?

Bundled payments in healthcare are a method where healthcare providers issue a single, comprehensive bill that covers all aspects of care services. These bundled payments take the place of separate payments for individual services, procedures, and tests. This model aims to encourage efficiency and coordination of care by setting a fixed price for the entire episode of care, rather than paying for each service separately. By doing so, bundled payments shift financial responsibility from payers to providers, who may face some financial risk if the cost of care exceeds the pre-arranged reimbursement, thereby promoting cost-effective care through shared financial stakes.

# Examples of Bundled Payments

Several CMS programs exemplify how bundled payments are reshaping healthcare delivery and inspiring similar strategies among private payers. These programs have since become foundational examples for other payers and providers looking to implement value-based care models.

• The Comprehensive Care for Joint Replacement (CJR) Model: This program focuses on episodes of care for hip and knee replacements. It bundles hospitalization and outpatient procedure service costs, setting target prices annually. By incentivizing hospitals to collaborate effectively, the CJR model improves care coordination across both inpatient and outpatient settings.

• Bundled Payments for Care Improvement (BPCI) Initiative: The BPCI initiative promotes cost savings and better patient outcomes by aligning incentives among providers. It covers clinical episodes and related procedures for 90 days, with payments linked to target prices and quality metrics. Post-acute care providers play an integral role in the BPCI initiative by working with hospitals and physicians to optimize patient care and align system-wide incentives.

• Oncology Care Model (OCM): Though the program ended in June 2022, the OCM improved cancer care efficiency and effectiveness. It included a $160 Monthly Enhanced Oncology Services (MEOS) payment for care management and a performance-based payment to incentivize cost reduction and improved care during chemotherapy episodes.

CMS’s early leadership in bundled payment programs has paved the way for the broader adoption of value-based care models by commercial payers and healthcare organizations.

# Benefits of Bundled Payments for Care Improvement & Healthcare Systems

As a cornerstone of alternative payment models (APMs), bundled payments effectively advance value-based care by prioritizing coordination, cost management, and improved patient outcomes. By shifting from traditional fee-for-service arrangements to models that prioritize coordination and efficiency, bundled payments incentivize providers to deliver higher-quality care at a lower cost.

A hallmark of bundled payment models is the predetermined target price for an entire episode of care, encompassing both acute and post-acute services. Providers share in the financial outcomes—savings or losses–based on their ability to manage costs and maintain quality. This approach encourages care teams to collaborate, reduce inefficiencies, and focus on improving patient outcomes.

Programs like Comprehensive Care for Joint Replacement (CJR) and Bundled Payments for Care Improvement (BPCI), pioneered by the Centers for Medicare and Medicaid Services (CMS), illustrate the potential of bundled payments to align incentives and streamline care delivery. These CMS-led initiatives have set the standards for alternative payment models, inspiring adoption across health systems and commercial payers.

Bundled payments also provide a more manageable path to value-based care compared to other APMs, as they focus on specific episodes of care rather than total population health. This flexibility allows healthcare systems to achieve meaningful cost savings while maintaining quality outcomes, making bundled payments a scalable solution for improving the efficiency and effectiveness of care delivery.

# 5 Keys to Implementing Bundled Payment Models in Healthcare

That same level of innovation must extend to care model adaptions, ensuring bundled payments drive the cost savings, care coordination, and patient outcomes these models aim to achieve. At Propeller, we know how to craft a winning healthcare payment model strategy. Here are some key considerations for building a plan capable of scaling future alternative payment model expansion under new payers and participants.

# 1. Understand the rules of the payment model game

Think of a new payment model as having rules, players, and a field of play. In any bundled payment model, there is a definition of the clinical activity that counts toward that bundle.

There's also a definition of applicable timelines for a bundle to be active or for claims to run out. Some claims “count” toward the bundle, while others will be excluded. And outlier rules will exclude some patients’ episodes from the reconciliation math.

There are several approaches in use to define episodes of care, which will require you to get into the weeds and understand how applicable programs operate. You won’t be able to play the alternative payment game successfully unless these things are well understood because they will inform your strategy.

Related Content: Accurate Healthcare Cost Estimated Can Make or Break the Patient Experience

# 2. Leverage data to determine opportunities & future outcomes.

To craft a vision for the future state of your care model, you need a data-driven process to define the opportunity in your patient journey. Data can effectively reveal which clinical activities in your current care model would positively or negatively impact the new model.

Good data analysis provides the voice of reason and a clear roadmap for improving cost, access, outcomes, and patient experience. Since bundle definitions generally extend beyond the walls of the hospital or provider for patients, the data representing clinical utilization and whole-bundle costs need to be available.

CMS provides this “full universe” claims data directly to providers. While commercial payers will likely struggle to match that level of transparency, strong claims-based analytics must be the basis for successful payer/provider partnerships in the bundles program.

This analysis can help identify a specific tactic to target to improve performance. This could include a post-acute care utilization, site of service opportunity, or a closer study into adverse outcomes or typically outlier patients who share commonalities like psychosocial components or similar treatment modalities. These applicable data insights allow you to take a carefully tailored approach to reshape the care model.

# 3. Build your patient care team.

The most challenging component of implementing a sustainable clinical care model is reorganizing the care teams involved in a patient’s care. Without effective change management that proactively acknowledges the “people side” of this change, these care model innovations are likely to fail. Bundled payment models require coordination to pay multiple providers for all necessary services during an episode of care.

Your quantitative assessment should be paired up with your team's clinical expertise. In most cases, it’s not about bringing new staff onto the team but reconfiguring existing clinical processes and their associated stakeholders.

This may involve requesting some team members to shift their work to a lower-cost care site. Healthcare systems must first assess the outcomes of making these changes so they are data-backed, have a firm foundation, and have personnel buy-in tied directly to the future state care model. This approach builds faster trust, alignment, and adoption for all involved stakeholders.

# 4. Take an agile, iterative approach.

You’ve assembled a talented roster of key players and now have leveraged data insights to craft a winning strategy. A “big bang” approach to implementing care model changes can backfire if the operational changes haven’t settled in or the contributors aren’t confident in their modified role on the team.

Consider testing care model strategies to make sure they enhance the patient experience and lead to better outcomes. Ensure you have the systems in place to answer those questions.

This is where an agile approach to testing and iterating the core concepts in the care model becomes essential for success. The best teams know their care models will evolve over time. Pilot programs, intervention testing, and good performance measurement are crucial to your ongoing success.

# 5. Grow your competitive advantage.

Your ultimate goal is to mature this care model innovation so it becomes part of your value proposition to the community you serve. You gain a competitive advantage in the marketplace when you demonstrate that you have bent the cost curve for costly healthcare needs.

Plenty of stories demonstrate how APM-driven care model innovations enhance the patient experience, reduce costs, improve functional outcomes, and decrease adverse clinical events. But just because it is possible does not mean it is guaranteed! If you follow the steps above, you are better positioned to realize real organizational benefits in deploying this step, which is focused on growth.

For example, many large employers adopt Center of Excellence programs for improved outcomes. Lowes and Boeing leverage concierge services that funnel patients with common and expensive care needs to healthcare providers with demonstrated excellence in performance, outcomes, and value. Leveraging existing payer relationships and building employer relationships can help unlock the potential of your care model so that as many patients can benefit as possible.

# Summary: Payment Bundling in Healthcare

Compared to accountable care organizations (ACOs), bundled payments involve less comprehensive financial and clinical risks as they focus on individual episodes of care rather than total population spending. They also involve less financial risk than other alternative payment models, which significantly affect provider reimbursement and care cost management.

Healthcare systems are all on a fast-moving, ever-shifting trajectory. Those tasked with implementing smart, strategic, and future-focused healthcare models and bundled payment innovations today can move their team of patient experience players forward confidently on every play. Making sure that all your participating providers are equally incentivized to gain from each play—while maintaining optimal patient experiences and health outcomes—is a winning strategy. Be willing to trust the data in new ways to keep your competitive positioning across markets, health systems, and clinical service areas.

At Propeller, we excel in turning complex healthcare challenges into opportunities for growth and innovation. Our services are designed to help reimagine how healthcare management and data utilization impact your organization’s workforce, patients, and quality of care. As your trusted partner, we’ll provide the expertise to navigate bundled payments and other potential shifts, ensuring your organization stays ahead of the curve. Together, we’ll turn your vision into reality and drive meaningful change.

Learn more about Propeller's healthcare industry experience.