Bundled Payment

Definition: Bundled payment is an alternative reimbursement model that is designed to help move from the traditional fee-for-service (FFS) payment to value-based care. With bundled payments, all providers and/or health care facilities associated with a patient undergoing a specific episode of care, or “clinical episode,” are paid a single fixed amount or “target price.” All providers and health care facilities share in the financial risks and outcomes associated with the episode of care.¹

Take, for example, a knee replacement surgery. In an FFS model, the payer reimburses each provider and/or health care facility individually. However, in a bundled payment model the payer reimburses the predetermined target price for the “clinical episode,” which is then allocated to providers and/or health care facilities involved in the patient’s care. In order to make a profit, providers/health care facilities must keep the cost of care under the target price. However, if the cost of care is more than the allotted target price, a loss occurs.        

Key terms:

• Clinical episode: care provided for a specific medical condition or illness during a set time period
• Target price: determined by the payer (e.g., CMS) using efficiency factor, peer-adjusted trend, and patient case-mix
• Alternative payment models: payment approach that gives added incentive payments to provide high-quality and cost-efficient care

How does it relate to ACOs and what does it mean for pharmacists: ACOs and bundled payments are both forms of alternative payment models and overlap can occur when an ACO patient undergoes a specified clinical episode.

A pharmacist can be included to manage the patient’s medication therapy throughout the episode, with the goal of reducing readmissions and improving patient outcomes associated with the patient’s clinical episode. This can be accomplished through medication reconciliation, post-discharge consultations, and evidence-based medication regimens.

Involved organizations/oversight: CMS’ current episode-based program is the voluntary Bundled Payments for Care Improvement Advanced (BPCI Advanced) Model that has 8 Clinical Episode Service Lines Groups (30 Inpatient, 3 Outpatient and 1 multi-setting Clinical Episode categories). BPCI Advanced has a single retrospective payment for a 90-day Clinical Episode duration. Payment is tied to performance on quality measures, and model participants receive preliminary target prices prior to each model year.¹

Resources:

1. CMS. Bundled Payments for Care Improvement Advanced (BPCI Advanced) Model: general information. Available at: https://innovation.cms.gov/innovation-models/bpci-advanced          
2. Norman A. ACOs vs bundled payments: can either save healthcare? Available at: https://bhmpc.com/2014/10/acos-vs-bundled-payments-can-either-save-healthcare/  

Contributing authors:

Jaclyn Douglass, PharmD

Cara Acklin, PharmD, MBA, BCACP
ACO Pharmacy Manager Franciscan Health ACO

Last reviewed 9/24/2023 by Amy Thompson, PharmD, BCACP