• Bundled payments are a type of medical billing encouraged by Medicare.
  • These payments charge you for an entire procedure or hospital stay rather than each individual service you received.
  • Bundled payments can lower your overall costs.
  • Medicare provides incentives to providers who use bundled payments.
  • The use of bundled payments is expected to keep increasing.

Most medical billing works on what is known as a fee-for-service model. This means you’re billed for each service you received.

A bundled payment model, however, bills by what’s called an “episode of care.” So, you’re billed for the entire treatment instead of each separate service.

This model aims to save money without affecting the care you receive. Bundled payments are one of the alternative payment models (APMs) that Medicare encourages.

A bundled payment is a method of billing for healthcare services that groups, or “bundles,” together all the services used to treat a particular medical episode.

This means that instead of paying for each medication, procedure, and service, you’ll have a single payment for the total service.

For example, during labor and delivery, a traditional fee-for-service model would bill the insurance company and you for each service. So, you might get a long bill that includes charges for:

  • the hospital stay
  • doctor’s fees
  • intravenous (IV) fluids
  • epidurals or other medications used
  • delivery room charges

With a bundled payment, however, the hospital bills the insurance company and you for a single labor and delivery charge. The care you receive with a bundled payment is known as an “episode.”

The price for an episode is predetermined. This means it won’t go down if you end up needing fewer care services but it also won’t go up if you end up needing more.

When a provider uses a bundled payment method, each episode has a trigger that’ll allow them to bill for care for that episode over a set amount of time. So, in this example, the episode trigger would be you going into labor.

A standard number of days of care would be accounted for under the bundled payment. You and the insurance company would then receive a bill with a single labor and delivery charge.

In 2015, Congress signed the Medicare Access and CHIP Reauthorization Act (MACRA). Among other changes to Medicare, MACRA emphasized the use of APMs instead of the standard fee-for-service model.

With an APM, providers are not paid under Medicare’s traditional fee-for service model but with a variety of different models. A 5 percent bonus is given yearly to participating facilities.

A value-based healthcare system is one where physicians and other healthcare providers are paid based on patient outcomes rather than on each service they provide.

Value-based systems track the quality of care and reward providers for meeting goals and maintaining standards.

The idea is to pay providers for the quality of care they deliver and not the number of patients they see or services they perform. This allows providers to spend more time with each patient and can improve patient care standards.

According to the Centers for Medicare and Medicaid Services (CMS), value-based care aims to achieve:

  • better care for individuals
  • better health for populations
  • lower cost

While fee-for-service models are still the standard, the use of bundled payments is growing. In fact, McKesson and ORC International predicts that 17 percent of healthcare payments will be bundled payments by 2021.

There’s some debate about which services should be bundled. For example, the Affordable Care Act of 2010 required bundled payments for hip and knee replacements and for cardiac care. This changed in November 2017, when the Trump administration and CMS canceled the mandate.

However, voluntary use of bundled payments is still encouraged by Medicare and by private insurance companies. Healthcare services that are commonly bundled include:

Millions of Americans rely on Medicare for their healthcare. Changes to Medicare to sustain and improve the current system are a priority, especially with the increasing average age of the American population. New models are being proposed by healthcare experts and government officials.

While the scope of these models and plans might look different, they have common overall aims:

To improve:

  • the quality of care
  • access to care
  • the healthcare market
  • healthcare education
  • health nationwide

To reduce:

  • Medicare spending
  • overall healthcare spending
  • hospital stays
  • preventable chronic conditions

  • Bundled payments are a single charge for an episode of care rather than an itemized charge for each service received.
  • The goal of bundled payments is to reduce the cost of care without reducing quality.
  • Medicare encourages the use of bundled payments as an APM and provides incentives for providers who use the bundled payment model.
  • The use of bundled payments is expected to increase with time as part of an overall shift in U.S. healthcare models.