Bundled Payments
Bundled payment models pay providers a single, predetermined amount for all services delivered during a defined episode of care — aligning financial incentives around efficient, coordinated care delivery rather than individual service volume.
What are Bundled Payments?
A bundled payment (also called an episode-based payment) covers all services associated with a defined clinical condition or procedure during a specified time period — typically 90 days from the initiation of care. Instead of paying separately for each service (physician, hospital, post-acute care, rehabilitation), the payer pays a single "target price" for the entire episode. If the actual cost of care is below the target price, the provider retains the difference; if above, the provider pays back the difference (within performance band limits).
BPCI Advanced Model
The Bundled Payments for Care Improvement Advanced (BPCI Advanced) model is CMS's current bundled payment programme, launched in 2018. Key features:
- 32 Clinical Episode Groups: Including major joint replacement, sepsis, hip fracture, COPD, pneumonia, heart failure, and stroke
- 90-day episode window: From anchor hospitalisation through 90 days post-discharge, covering all Part A and Part B services
- Target Price: Set by CMS based on historical episode costs, adjusted for risk and geography
- Two-sided risk: Participants receive reconciliation payments when actual costs are below target; make repayments when costs exceed target (within payment band limits)
- Advanced APM qualification: BPCI Advanced is an Advanced APM, exempting participating physicians from MIPS
Post-Acute Care (PAC) Utilisation: The Key Driver
In most bundled payment clinical episodes, post-acute care (PAC) accounts for 40–60% of total episode cost. The key drivers are: skilled nursing facility (SNF) placement versus home health, SNF length of stay, and readmission rates. Studies show that reducing SNF days by 2–3 days per episode (transitioning appropriate patients to home health) generates significant savings within the bundle target. Analytics identifying patients appropriate for home health versus SNF — and optimising SNF LOS — are the highest-value bundled payment capabilities.
Hip and Knee Replacement Example
The most commonly participated episode in BPCI Advanced is major joint replacement (lower extremity). The average 90-day total cost nationally is approximately $18,000–$22,000. The largest variation driver is whether patients go to SNF (average 2-week stay adds $10,000+) or home with home health (adds $3,000–5,000). Hospitals with structured care pathways, preoperative optimisation, and proactive care transitions consistently outperform their targets by $2,000–$5,000 per episode.