Bundled payment is a potential new way to pay Medicare service providers. Medicare is testing the process to assess if it will improve care and reduce costs.

In this article, we look at the Medicare bundled payments system, including the most recent models, and compare it to the traditional payment processes.

Older woman and younger women looking at laptop, researching Bundled Payments modelsShare on Pinterest
BPCI can potentially improve patient care and lower Medicare healthcare costs.

The Center for Medicare and Medicaid Innovation (CMMI), also known as the Innovation Center, works with the Centers for Medicare and Medicare Services (CMS) on developing and testing new ideas.

One such idea involves innovative health care payment and service delivery models, including the Bundled Payments for Care Improvement (BPCI).

BPCI was developed to potentially improve patient care and lower Medicare healthcare costs. In this program, organizations entered a contract with Medicare for payment arrangements based on accountability for performance and finance.

The most recent stage in the BPCI testing is called the Bundled Payments for Care Improvement Advanced (BPCI Advanced).

There are several payment models in the United States federal healthcare system.

The traditional method is Fee-for-Service (FFS), whereproviders are paid for each healthcare service they do, including tests.

Another payment method is the capitation model, in which a contract is entered by a state, a health plan, and the CMS. A fixed amount of money is paid to each health plan every year.

In the traditional models, providers are paid by Medicare for each separate service given to a person during a course of treatment or a single illness. According to CMS, the traditional payment model can lead to less coordination between healthcare providers and healthcare settings.

The BPCI is a new payment model in the testing stage, in which providers are paid a fixed amount based on a person’s diagnosis and treatment. The payment covers the services of all providers, including the hospital and doctors.

The more recently launched BPCI Advanced started in 2018 and ends in December 2023. The basic premise is similar to the original BCPI and works as a total-cost-of-care idea.

In the traditional FFS model, doctors and facilities are paid for each service provided to a person. FFS is built on billing codes to identify diagnosis, procedures, services, and equipment. Medicare determines how much is paid for each code.

In both BCPI models, one group or organization is responsible for all the billing and spending.

When a person needs care, Medicare calls this an episode of care. While each episode of care may involve different providers, only one provider is responsible for coordinating the care. The different providers may include:

  • hospitals
  • skilled nursing facilities
  • long-term care hospitals
  • nursing homes
  • physician group practices
  • home healthcare agencies
  • inpatient rehabilitation facilities

Medicare started four tests of the BCPI in 2013. The first was done in 2016, with two more in 2018. The most recent report was released in June 2020.

In 2018, the CMS reported that 1,547 Medicare providers and suppliers signed agreements to take part in the BCPI Advanced model. The BCPI Advanced model test ends on December 31, 2023.

Both models of the BPCI begin when a clinical episode is set in motion. Clinical episodes are separated by areas in which a person needs care, including:

  • spine, bone, and joint
  • kidney
  • infectious disease
  • neurological
  • cardiac (heart)
  • pulmonary (lung)
  • gastrointestinal (stomach and bowels)

Some clinical episodes happen across different settings. This means the first event may happen in the hospital, then continue as an outpatient.

Medicare created programs within BCPI to organize care for some health conditions. In 2020, the ongoing programs include:

The CJR model runs from April 1, 2016–December 31, 2020. The program has approximately 465 acute care hospitals in 67 metropolitan statistical areas (MSAs). An evaluation of the first year showed the program may shorten the number of days a person stays in a skilled nursing facility.

In the first year Medicare lowered the cost of a joint replacement by an average $453.

The CJR was a mandatory program for care providers. Many other bundled payment programs are voluntary for service providers. Data suggests it showed typical hospitals could improve care.

Other programs have been announced, but not started. They include the Radiation Oncology model and the end state renal disease (ESRD) Treatment Choices model.

Medicare tracked information during the original model BCPI program and published the findings. There were several advantages and disadvantages as shown in the chart below.

AdvantagesDisadvantages
Medicare found the fee-for-service payments were lower for clinical episodes during testing. However, overall spending increased due to rewards to the hospitals for reducing costs.Changing the bundles can be difficult in the computerized system.
Fewer people were discharged to a skilled nursing facility from an acute care hospital. The program does not address the difficulty with accounting for overhead and indirect costs.
The program did not trigger more readmission or emergency room visits. Some items of care are not covered in the bundled payment structure.
The data suggested the quality of care was the same for people who were vulnerable as for people who were not vulnerable. This category included people who were
eligible for Medicare and Medicaid, had
dementia, or had recently been in a skilled nursing or other residential care facilities.
Making technology changes may slow the process of keeping systems up to date.
People who went to a skilled nursing facility stayed less time. More rehabilitation was done at home with home healthcare.The system may slow innovations in care.
Challenges occurred with billing systems and distribution of funds.
Physicians and hospitals must collaborate to reduce costs.

To date, the BPCI Advanced model has produced one evaluation report on its findings, based on October 2018–March 2019. It found there were 334 unique participants, including 580 physician group practice episode initiators and 715 hospitals.

BPCI is a provider payment model undergoing testing. It potentially improves patient care and lowers Medicare healthcare costs.

The most recent stage in the BPCI testing model is called the BPCI Advanced.

The results of the billing and payment tests suggest people are spending less time in skilled nursing facilities and getting home more quickly. Disadvantages with the system are related to technology, billing, and payment methods.

The information on this website may assist you in making personal decisions about insurance, but it is not intended to provide advice regarding the purchase or use of any insurance or insurance products. Healthline Media does not transact the business of insurance in any manner and is not licensed as an insurance company or producer in any U.S. jurisdiction. Healthline Media does not recommend or endorse any third parties that may transact the business of insurance.