A Starting Point For a Bundled Payment Program

Starting_PointThe Bundled Payment initiative is slowly winning health executives over. Initially it was just Centers of Medicare and Medicaid Services (CMS) “trying out” the program, but now commercial payers are starting to evaluate the options of aligning their services in readiness for bundled payment. Everyone wants to reduce costs and if it’s bundled payments that are going to get us there then that’s the way to go.

Simply put, bundled payment models aim at allocating financial risks amongst payors and providers.  If everything goes to plan, this allocation should be as equitable as possible while rewarding outcomes and quality – and that’s where the problem arises.  No two bundled payment programs will be exactly alike, so even though you’re allowed to learn and even borrow from others, you need to come up with your own structures, built to suit your practice, your patients, and your payors.

Here is a good starting point for private practitioners who’re looking to implement the bundled payment program.

Define the bundle

It’s very important to know your bundles.  The main problem currently faced by providers is new payor arrangements that threaten existing boundaries.  For instance, some ambitious models are now looking at making bundled payments for complex conditions like cancer.

Private practitioners are encouraged to arrive at their bundles after answering the following four questions;

  • When does the bundle start? What events will trigger it?

  • When does it end?

  • Under what circumstances may the bundle be broken?

  • Who and what providers and services are part of the bundle?

For each bundle, define the budget

One very important aspect of the bundled payment program is that you’ll be working against a pre-determined budget. So you have a target to beat, a baseline.

Most providers continue to make a big mistake by wholly relying on past data in establishing budgets.  While making reference to past practices is allowed, physicians are encouraged to concentrate on finding risk adjustment processes that can help them accurately mitigate care disparities among different patients.  It may also help for providers to negotiate additional contractual safeguards.  For instance, you shouldn’t let your payors categorize some patients as being less severe, and requiring less attention, than others.  If the patient is being cared for under a certain bundle, then reimbursements can only be made according to that bundle.   

Budget for risks from the onset

Basically there are two modes of payment. “Retrospective” payment is when is when you’re paid as you offer the services, similar to the fee-for-service approach.  “Prospective” payment is when you receive a lump sum payment normally at the front end of the service.

Both methods are workable when structured appropriately.  What is important is for the provider to address risks while allocating the dollars.  You must realize that for every cent spent above the pre-determined budget, you share in the loss.  You can get around this by starting with a shared saving model and advancing slowly through shared risk and into a full risk program.

Adopt new technology, but vet first

In the bundled program where value is the driving force, vetting your technology is very important.  You need technology yes, but only that which is going to contribute to the goal at hand, improve quality of care, managing the episode of care, lowering costs and improving profitability of that service line and that of the practice.  Capital decisions have to be made strategically based on the value of any incoming technology to improving the management and delivery of treatment and care for an episode of care and/or the reduction of costs.


There are several other strategies that can help with unbundling the bundled payment program out there.  For dedicated providers, this should just be the starting point.