Bundled Payments


Bundled payments encourage collaboration across disparate providers that are all treating the same beneficiary during a single episode of care by linking the payment for each of the individual services. A lead entity takes responsibility for organizing providers to deliver high quality, efficient care. For example, if a patient has an operation, instead of paying separately for the preparatory consults, the surgery (both hospital and physician component), rehab services, and other post-operative care, the payer pays a set price. All providers treating the patient during this episode of care must collaborate to ensure that costs are in line with the price and that quality targets are met. In a prospective model, a single provider (or entity) contracts with the payer and is responsible for paying the other providers who treat the patient. In a retrospective model, the payer sets a target price (e.g., $25,000 for a knee replacement). The payer continues to pay each provider individually, however the designated lead provider is penalized if the total cost of care for the full bundle of services exceeds the target price.

Patient Population

Bundled payments can be developed for most patient types and conditions. Medicare, commercial, and employer bundle arrangements are increasingly common.

Typical Lead

Hospitals, Physician Groups, Integrated Delivery Systems, Skilled Nursing Facilities, Home Health Agencies

Role of Home Health Home health providers may serve as the lead entity (most commonly in bundles that only include post-acute care services) or may contract with lead entities to provide a subset of the required services. 
Reimbursement Model There are two reimbursement models: prospective and retrospective. In a prospective model, a lead entity or provider (often referred to as a “convener”) receives a single payment for an episode of care. The lead entity must contract with all of the providers who will serve the patient during the episode. Providers that contract with the lead entity are generally paid on either a fee-for-service or pay-for-performance basis. In a retrospective model the payer sets a spending target. A lead entity assumes responsibility for achieving the spending target; however, the entity does not receive a single payment for all of the services. Instead, all providers are reimbursed in their routine manner by the payer and the total cost for the bundle of services is calculated at the end of the bundle. Any savings generated against the target cost are shared with the lead entity. Similarly, the lead entity is responsible for a portion of any losses. The lead entity may choose to share savings or losses with contract providers.
Minimum Infrastructure Requirements
  • Data sharing across providers, including clinical, cost and quality data
  • Data analytics to identify high risk patients for specialized care coordination services
  • Adoption of standardized care protocols to minimize quality and cost variation
Variations Numerous variations exist by patient condition and by scope of the bundle. For example, a bundle may include only services provided in the acute care setting (hospital, physician), both acute and post-acute care services (hospital, physician, skilled nursing, rehab, home health), or just post-acute care services. In the Medicare program, different bundled payment models are defined as: Model 1(Acute Care Only; Retrospective Payment); Model 2 (Acute and Post-Acute Care; Retrospective Payment); Model 3 (Post-Acute Care Only; Retrospective Payment); Model 4 (Acute Care Only; Prospective Payment).
Watch our 10 minute video: "What is a Bundled Payment?"

CMS Bundled Payment Learning and Resource Center

Member Profile: Advanced Home Care

Alliance for Home Health Quality and Innovation: What's New With Bundled Payments? (Webinar) (Slides Only)