What Are Bundled Payments and Are They Here to Stay?

Key Takeaways

  • Current vendor solutions are limited and generally require additional advisory services.
  • Few available solutions offer workflow integration, especially across post-acute care settings, to assist in the execution of bundled episodes.
  • Larger HCOs will weather the shift to bundled payments more easily than their smaller counterparts, especially as bundled payments begin to scale across multiple service lines.

Bundled payments have been looming on the horizon for healthcare organizations (HCOs) at varying degrees of intensity for at least the last thirty years. As healthcare costs have continued to rise, payers and providers are increasingly viewing bundled payments as a viable alternative to fee for service (FFS) payment structures.

Recognizing that this trend is here to stay, we authored the upcoming report, Bundled Payments: Current Strategies and Tools, to help HCOs understand the impetus behind bundled payments as well as provide a detailed perspective on how healthcare information technology (HIT) vendors are prepared to support this payment modality transition.

The Drive for Bundled Payments

Bundled payments are positioned to serve as a transition between FFS and capitation. By definition, a bundled payment links multiple provider payments into one care management and payment system during a specific episode of patient care during a defined period of time. There are two types of bundles: prospective and retrospective.

A retrospective bundle incorporates a reconciled budget with the payer or “convener” as a financial integrator of the fees paid out instead of putting the responsibility upon one provider. This arrangement is built upon a FFS system and is retrospective because providers first receive their usual FFS payments, and then they receive an additional payment after their total costs are assessed and if cost savings were generated. However, cost assessments can take a year or more to complete after services are initially provided.

A prospective bundle pays a fixed price for a set of services covered in the bundle before all of the services are rendered. An average cost per episode of care is determined based on historical data and/or regional costs and payment is delivered to providers when an episode is initiated, rather than waiting until the entire episode has been completed. Adjustments to payments are made after the fact to account for outliers, excluded episodes, and other factors.

Retrospective payment bundles are the most widespread bundled payment system primarily due to the abundance of participation in the Bundled Payments for Care Improvement (BCPI) Initiative and the Comprehensive Care for Joint Replacement (CJR) model. Retrospective payments for bundles are also easier to understand, administer, and execute, which is why they comprise the majority of bundled payment financing arrangements to date.

A CMS-led Initiative

CMS is still navigating how to implement this payment structure while not alienating providers, and BPCI was an attempt to find a middle ground that is palatable to providers while capitalizing on the cost savings bundled payments offer payers.

Unfortunately, determining this middle ground has led to CMS sending conflicting messages to the industry. In late 2017, CMS rescinded rule changes that required mandatory bundled payments for providers to test the effect bundled payments would have on cardiac and orthopedic care. CMS noted that responses from providers to the mandatory bundled payments cited concerns over both the process by which costs for episodes were determined as well as the ability for smaller HCOs to comply with the process.

Despite these setbacks, CMS is not withdrawing support from bundled payments as a whole and has instead created the BPCI-Advanced, a voluntary iteration of BPCI with the same goal of aligning incentives among health care providers. Early adoption of the BCPI-Advanced program has been robust although it remains to be seen how many of these providers might exit early next year. Additionally, HHS Secretary Azar indicated last month that mandatory bundles are coming in the near future for radiation oncology and possibly other providers as alternative payment models.

Commercial payers have shown interest in bundled payments, but have been slow to introduce the practice. Although we have seen increased adoption from some payers, the general consensus is that these organizations will wait until the concept is proven before devoting resources to the change. We might have to wait until bundled payments are once again mandated by CMS before commercial payers adopt the model.

Provider Reservations

While the attitude of providers towards bundled payments could be best described as “wary,” there is still opportunity for healthcare providers to lower their costs while improving the standard of care. Yet, success with bundled payments requires close coordination between multiple providers over a varying timespan, something that many providers struggle with.

In order for bundled payments to work for both patient and provider, an HCO needs to have the ability to identify who is eligible for bundled payments early in the treatment cycle through monitoring and tracking. They also need to have a network and processes in place to engage affiliated and community providers that are necessary to the bundled payment process. Not surprisingly, many HCOs are hesitant to invest the organizational resources necessary to establish this level of collaboration.

Specialty physician groups that are only focused on engaging in one or two retrospective bundles will be able to change more rapidly but over the longer term, it will be harder for smaller HCOs to effectively scale bundled payments across multiple services lines within their organization. Another advantage larger systems have is systems and processes for dealing with post-acute care needs that are critical for succeeding in bundled payments.

In general, large HCOs with wide networks and established reporting and monitoring processes are better equipped to handle the transition to bundled payments and effectively scale these program although several specific factors (e.g., episode type, target price, exclusion criteria, risk adjustment) will affect how a provider performs.

The Tools for Bundled Payments

Our report focuses primarily on identifying the IT environment that supports, and will support, bundled payment plans. We were able to identify a number of key issues that software solutions must address, including patient tracking, care process redesign, and physician engagement. As of the writing of this report, no vendor offers a comprehensive solution to the myriad reporting and management challenges that bundled payments present.

We did identify commercially available solutions to deal with cost and quality reporting requirements inherent in the bundled payment process. Unfortunately, HCOs are going to have to develop piecemeal processes that incorporate multiple systems until vendors are able to provide a robust comprehensive solution. We expect that as bundled payments garner more support and interest, HIT vendors will recognize the market opportunity and develop systems to specifically address these issues.


The question is not whether bundled payments are going to see greater utilization, but rather to what extent will bundled payments affect healthcare payers and providers? Providers especially will need to have a plan and processes in place to reduce risk to their revenue streams as bundled payments become more ubiquitous.

Our report, Bundled Payments: Current Tools and Strategies, outlines how providers can navigate these changes and identifies IT solutions that may assist them. It provides detailed insight into what bundled payments are, how to execute them, and the challenges associated with their orchestration. Furthermore, it contains comprehensive vendor profiles and evaluations of the solutions they offer, which we hope will assist providers as they prepare for this transition.

On January 30, 2019, we are hosting a webinar on this topic. To attend or just be on the list for the recording, please click here to register.

Stay up to the minute.

Did You Know?

Major Medical Decisions Still Require a Leap of Faith

Last weekend during dinner with my family, the topic of total knee replacements came up. My aunt, who is 70, is having her first procedure done and wants to know what information is available to help her make a better decision. She hoped that I might have some insights, since she knows I am researching bundled payments for total knee replacements.

I asked what she already knew. She stated she had plenty of anecdotal advice and recommendations from my uncle, her primary care physician, friends, and even professional colleagues. It varies a bit but basically consists of “I had my procedure done at this particular facility by this orthopedist and it was great.” This was helpful but did not really help her to know where to begin. She explained that she had gone to ‘Dr. Google’ and entered a particular recommended facility or provider, along with the keyword “total knee replacement.” This returned a large number of results. She clicked on a few links but quickly grew disheartened and frustrated by not readily finding the information she was looking for or learning the differences in the types of ratings data that was available. After printing out a dozen pages over 30 minutes, she gave up.

What’s most important to my aunt is her likely functional status a year or five years from now. How quickly she will be able to resume normal daily activities of living, such as walking and bathing, as well as her varied daily routine? Potential complications and pain associated with the procedure itself are a secondary concern given her health status.

Unfortunately, I told her that information is just not readily available. Several organizations, including CMS, provide limited outcomes-based information at a facility level on total knee replacements. Additionally, a tool made available by ProPublica last year provides limited outcomes-based information on how particular orthopedists have performed. She was unaware of a few of these resources and appreciated that I provided her with the details.

I tried to explain that a registry has been gradually adding facilities and collecting outcomes-based data on total knee replacements – but the data has not been made publicly available though and still only represents less than 20% of all total knee replacements done annually in the United States. Additionally, I mentioned several rating systems that evaluate the outcomes of total knee replacements – but these are not used or collected in any systematic fashion.

After explaining all of this, my aunt was more perplexed than ever. I told her to use some of the information sources I had provided but recommended that, in the end, she would have to make more of a “gut” decision on what facility and provider to choose. I did tell her to focus on a few other things she had overlooked:

• Did the orthopedist talk to her about her particular goals and preferences?
• Did the initial consultation with the orthopedist address particulars about what my aunt should expect, including detailed and patient-specific information on pre- and post-surgery concerns?
• What device does the orthopedist recommend, how long has he/she been using it, how many times he/she has implanted it, and what is the device’s track record been?

At end of this lengthy conversation, my aunt felt better, but she still didn’t know with what orthopedist she should schedule an initial consult. She was going to use some of the limited publicly available information and take a “leap of faith” after meeting with the orthopedist and obtaining additional information.

As I conduct further research on this topic and talk to various health IT vendors and medical device manufacturers, I am curious to see what types of solutions they offer to help providers (or payers) address this glaring need for outcomes data, as well as the administration and clinical management of bundled payments. Based on the dinner conversation with my aunt, I see several clear needs in this market:

Increased outcomes information meaningful to patients – There is a need for patient-reported outcomes using a standardized, clinically-validated rating system for total knee replacement collected at a facility-level
Risk-adjusted information on device performance – This is always going to be a challenging issue to address but information today is either limited to marketing collateral from device manufacturers or an orthopedist’s recommendations
Customized care plans – Care pathways are increasingly being mentioned but patients need more transparency into what this means including how this is being translated into individualized care plans
Patient-decision aid tools – Patients need tools to enable better shared decision-making and help to customize the options available to them
Guarantees from the facility and/or device manufacturer – Some providers organizations and device manufacturers have become to offer this since 2014 but it still rare overall
Price transparency – While this is not as much of a concern for Medicare patients especially those with Medigap coverage, it is for patients in traditional commercial coverage especially as deductibles and out-of-pocket limits continue to steadily increase

Surgical procedures, especially invasive procedure like total knee replacements, will always have a degree of risk and inevitable complications. If more responsibility, especially cost, is going to be thrust on to patients like my aunt, they need much more substantial information and tools to help them make this decision including where this procedure should be done, who should perform it, what device should be used, and what outcomes they can realistically expect to achieve.

For more information and analysis of the care management market, the 2017 Care Management Market Trends Report will be available shortly for purchase.

Going Beyond the Obvious: 2016 Predictions for Healthcare IT

16predNever a dull moment in healthcare.

2015 saw plenty of changes and some inklings as to what may be in store for us in 2016.

While there was plenty of noise around ICD-10, it was a non-event in 2015. Likewise, while there was plenty of noise around interoperability in 2015, or lack thereof, the real problem is not a technology one – though that is an easy target. Precision medicine, exorbitant drug pricing and ever abundant amounts of cash flowing into digital health all took stage in 2015 which color our predictions for 2016.

But rather than recite a bunch of predictions that are blatantly obvious, as is our tradition, we wish to push the boundaries. With that in mind, here are our annual baker’s dozen of predictions for 2016.

Cyber-security Hacks Increase as Value Escalates
The value of health data doubled on the dark web last summer despite the volume going up. With a premium price placed on such data, expect the battle to escalate between nefarious hackers and IT departments. With current systems scarcely able to meet the challenge, expect IT vendors to begin considering Blockchain in 2016 – the uber-secure system behind BitCoin.

EHR Vendors Begin Taking Big PHM Market Share
It has taken several years for some of the major EHR vendors to hone their PHM offering to the point where it is even reasonably adequate to consider in a bake-off against best of breed vendors but that time has come. PHM best of breed vendors would be wise to further focus their resources on those EHR vendors who still are light-years away from delivering a capable PHM solutions suite or those EHR vendors that remain myopically-focused on providing PHM solutions that only work in their EHR – a dead-end strategy in our view.

Telehealth Matures, Consolidates
With over 50 percent of states now requiring payers to cover telehealth services, we will reach a tipping point in 2016 leading to industry consolidation. Larger telehealth vendors will begin acquiring niche players in specialties such as women’s health, behavioral health, or physical therapy. Two of the leading vendors (e.g., American Well, Doctor on Demand, MDLive and Teledoc) will merge in 2016.

Physicians Flock to Direct Primary Care
Faced with the prospect of burning out or returning to the roots of personalized medicine, more physicians will transition to direct primary care (DPC) (a more egalitarian form of concierge medicine). Fewer than 10 percent of PCPs do it now, but that number should more that double to 18 percent in 2016 as the added pressures of insurance reimbursement, quality reporting, MU attestation and churning through patients just to keep the lights on continue to add up. EHR vendors such as Amazing Charts, who are targeting DPC will do well.

APIs Gather Steam but FHIR APIs Doesn’t Become Mainstream —
Most FHIR product actions in 2016 will be on the edges rather than where the bulk of patient data resides – in EHRs. FHIR support will continue to pop up in places where few providers can actually use it. No major EHR vendor will release a comprehensive set of production-ready FHIR profiles and resources in 2016.

CCM Code Underwhelms
Though CMS’ new billing code for chronic care management services landed with a big splash in 2015, it will sink rather than swim in the provider market in 2016. Perhaps if documentation had been more tightly integrated into other programs (e.g. MIPS or Meaningful Use), or if the requirements were not so challenging (particularly the patient copayment), this would have been a better bone for CMS to throw to the ambulatory market. Like the challenges faced for CMS’s Pioneer ACO program, expect CMS to go back to drawing boards on CCM in 2016, releasing new, less onerous guidelines in early 2017.

Increased Attention on Referrals Transactions
In 2016, providers will recognize that the humble and largely paper-driven referral is the triggering event for care coordination. It represents the best time and opportunity to marshal the information needed to make cross organization workflows more functional that they are. CNM, care management, and analytics vendors, all who are at the nexus of referral management, will roll out new referrals applications in 2016 or require a niche vendor. EHR vendors will continue to struggle here as referral management across a heterogeneous EHR community remains a secondary concern.

Digital Health Investing Sees Steep Decline
Investment dollars have been pouring into the digital health market at astounding rates over the last few years but this will slow dramatically in 2016 dropping by roughly a third. There is simply more capital available than solid companies with attractive business plans to invest in and few unicorns on the horizon.

Data Governance, Ethics and Consent Stymie Interop
Yes, there are plenty of interoperability issues today. The technical ones, while challenging, pale in comparison to the softer issues of governance, ethics and consent. In 2016, leading HCOs will look to develop common data curation strategies that go beyond the widely used, albeit limited in context, DURSA that sits within The Sequoia Project.

Pharmaceutical and Med Device Companies Expand Outcomes-based Pricing
Outcomes-based pricing for pharmaceuticals and medical devices will see increasing interest as the rallying cry to reign in run-away drug pricing accelerates during an election year. Yet, we will only see very limited expansion in 2016 due to challenges associated with measuring and attributing outcomes to a given therapy. The ability of today’s heath IT systems to effectively measure such outcomes will be a key sticking point.

CCJR Sets the Direction and Care Coordination Benefits
Following CMS’s lead, commercial payers will begin to implementing CCJR-like payment schemes. Throwing different HCOs into a single boat will create two sets of IT-addressable challenges. First, every participant will need better visibility into care processes of other providers. Second, divvying up the payment will need better contract modeling and the ability to manage exceptions across organizations. HIT vendors will roll out limited functionality in mid-2016 leaving providers to cobble together the rest.

PGHD Meets Wearables with Mixed Success
Patient-generated health data (PGHD) will be a hot topic at HIMSS’16. Proposed MU3 requirements will simultaneous spawn a crop of myopically focused startups and add another product requirement to EHR vendors’ plates. Yet, we will face another year of unmet expectations as consumer-wearables fail to deliver consistent biometric values that can be used in a medical context. On the margins we’ll see progress on incorporating remote patient monitoring (RPM) data into the enterprise as well as broader incorporation of questionnaires and patient surveys into portals (e.g. pre-visit goal setting tools). To the chagrin of many, 2016 will not be the year we see this industry leverage these data to augment risk scores, conduct proactive engagement, or do much beyond following marching orders from DC.

Mergers and Acquisitions Accelerate While Facing Increasing Scrutiny
While 2015 saw a record breaking number and dollar value in healthcare related M&A, 2016 will eclipse that number and maybe even value. Four key M&A activities we forecast in 2016 are:

  1. A leading, national payer acquires one of the progressive upstart payers (e.g., Oscar).
  2. EHR vendors with just a modicum of PHM capabilities acquire best-of-breed vendors to meet growing client demand. While valuations will be high, they won’t be outrageous as PHM investors look to cash-out before bottom drops-out.
  3. Several EHR vendors with reasonably-sized, customer footprints will be acquired or merged with another EHR vendor to gain scale and lower cost structure – particularly SG&A.
  4. FTC will reject at least one major provider merger that threatens healthy competition in a given market.

There you have it folks, our much awaited and anticipated 2016 predictions. As always, we welcome your comments be they for or against this modest list. We learn best through your learned feedback.