Five Reasons Hospitals and Physicians Should Plan for Bundled Payments in 2018

Wednesday, November 22, 2017 | Larry Sobal

Five Reasons Hospitals and Physicians Should Plan for Bundled Payments in 2018

I recently had the opportunity to present at the 28th Annual Scripps Cardiovascular Interventions program, an excellent event that I highly recommend. My topic, The major role of cost and quality in the new AMI bundle environment, elicited many questions regarding the future status of episode payment initiatives (aka bundled payments) in cardiology and health care in general. I typically answered with an emphatic “Yes, they are here and growing,” and today want to elaborate on why I think that is.

What was likely causing the questions was that CMS announced in August it would cancel two mandatory models, the Advancing Care Coordination through Episode Payment Models (EPMs) and Cardiac Rehabilitation Incentive (CRI) Payment Models, and proposed to make the Comprehensive Care for Joint Replacement (CJR) model voluntary. The move wasn’t a surprise, as both CMS Administrator Seema Verma, MPH, and then-HHS Secretary Tom Price, MD, had been critical of mandatory payment models in the past. However, it’s important to note that this is still a “proposal” and has not been finalized.

I’m not suggesting that official cancellation will not happen soon, but the reality is that some organizations, such as the American Hospital Association, at the time expressed concern that the cancellation may be disruptive to providers who have expended resources to prepare. Anecdotally, I can add that some MedAxiom members who were among the estimated 1200 hospitals who would have been participants in the 5-year program, were also disappointed; they saw the mandatory nature of the AMI and CABG episodes as a way to gain further experience with bundled payments, capitalize on their perceived low-cost/high-quality market advantage, or create additional reasons to focus on greater alignment with their cardiovascular physicians.

The reasons why I am bullish on bundled payments, and strongly urge all hospitals and physicians to begin preparing for them, are as follows.

First, although much of the publicity regarding bundled payments had been focused on the aforementioned cancelled cardiac bundles, the reality is that episodes of care pilot payment programs have been around since 1983 when Medicare shifted from paying hospitals on the basis of reported costs to paying a fixed amount per inpatient stay based on a patient’s diagnosis (aka DRGs). CMS and other payers have had a variety of bundled payment experiments since then including the Arkansas Health Care Payment Improvement Initiative, which is a Medicaid bundled payment model, and the PROMETHEUS bundled payment experiment.

Second, if you think EPMs are going away or just another fad, I caution you to think again. As I blogged about earlier this year, although the volume-to-value movement may not have yet reached a tipping point in your market, it certainly has in others and will eventually reach you. Your understanding of and ability to manage episodes of care, specific clinical populations, and your competence at becoming a market leader in terms of high quality and low cost, will become more and more critical to your organizational success.

Both providers and payers in a 2016 McKesson survey viewed bundles as the fastest growing payment model in the U.S. Payers forecasted a 6% growth over five years, and providers estimated that bundling would account for 17% of reimbursement in five years. By contrast, providers expected the presently dominant fee-for-service to drop to 39% in five years. Payers were more bullish, pegging fee-for-service at 35%.

CMS is not the only driver of bundled payment models. Commercial payers, and even employers, are also driving bundled payment arrangements. And our experience is that commercial bundles are even more complex, due to their less homogenous population and treatment patterns compared to Medicare-aged beneficiaries. Regardless, bundles have become part of the health care landscape and they are here to stay.


Bundles have become part of the health care landscape and they are here to stay.


At least five major national employers have established employer-based bundled payments: Wal-Mart, Lowe's, PepsiCo, Boeing and Kroger, with Wal-Mart being the foremost leader in the space. Several other smaller employers have started their own bundled payment deals with hospitals.

Third, all signs point to an announcement coming very soon related to the next iteration of the Bundled Payment Care Initiative (BPCI), which was launched in 2011. Although there is much speculation about what the new BPCI Advanced will look like, some information has been conveyed by current or former CMS employees, which point toward the following:

  • Participation in BPCI Advanced will be voluntary and will initially have less than the 48 episodes that were options in the initial BPCI program
  • The intent of BPCI Advanced is to build on BPCI Model 2, which involves a retrospective bundled payment arrangement where actual expenditures are reconciled against a target price for an episode of care
  • BPCI Advanced will build on the Model 2 framework by including the requirements for qualifying as an Advanced Alternative Payment Model under the MACRA statute (these requirements are downside risk, use of CEHRT, and quality measures tied to payment)
  • Clinical Episodes are triggered by the submission of a claim for either an inpatient hospital stay (Anchor Stay) or an outpatient procedure (Anchor Procedure) by an Episode Initiator, with a 90-day window of post-acute care following discharge from the inpatient facility or the completion of the outpatient procedure
  • These bundles will operate under a fee-for-service system with a post-payment reconciliation that will depend on a semi-annual measurement of Participant performance. Participants will be provided preliminary target prices for each episode, which will then be reduced by a discount percentage, with CMS comparing the final spending amount to the target price
  • Participants in BPCI Advanced will be provided preliminary target prices for each episode, which will then be reduced by a discount percentage, with CMS comparing the final spending amount to the target price

It will be interesting to see how close BPCI Advanced comes to these predictions.

Fourth, recently CMS and its contractor, Acumen, finished conducting field testing for eight episode-based cost measures for consideration in the cost section of MACRA/MIPS. There has been some feeling among physicians that bundled payments will largely be the purview of hospitals, although many don’t realize that 277 out of 699 participants in the current BPCI Model 2 are physician group practices. It’s not a stretch to think that CMS will act on this research and figure out how to quickly incorporate bundled payments into the cost section of MIPS. If you were one of the physician groups whose data was selected (as in this mock report), you probably figured out already that attribution will be a challenge, as it almost always is in a bundled payment model.

And let’s not forget that Section 3003 of the Affordable Care Act of 2010 required that the Secretary of the Department of Health and Human Services develop an episode grouper. Therefore, CMS is applying episode grouping algorithms specially designed for constructing episodes of care in the Medicare population. As a result, the Quality and Resource Use Reports (QRURs) provide information to medical group practices and solo practices on their resource utilization for the management of episodes of care for their Medicare fee-for-service patients.

Finally, if you want to get an advanced glimpse into what might be coming in the future, one place to look is the Health Care Payment Learning & Action Network (LAN). Among their many white papers, are some that outline frameworks for Alternative Payment Models, including bundles. LAN is thought to have some influence on CMS thinking.

So if I were a hospital or physician group, I would start thinking today about my future with bundled payments. A good place to start would be to make sure you have the organizational competencies needed for success with episode payment models. Those, in and of themselves, may take a lot of work to shore up.

Beyond that, if you are considering entering a voluntary bundled payment arrangement—or are a part of one but lack effective data—you need to discuss and develop plans to succeed. We help organizations look at their episodic data and care patterns to evaluate the risk and opportunity associated with participation in bundled payment programs. Knowing how to effectively manage data—and make it usable and actionable—is a stumbling point for many organizations; it typically takes some time to learn how to digest the data and take appropriate actions.

Regardless, I would bet that if bundles are not already part of your current reality, they will be, in some way, in 2018.


llustration: Lee Sauer


Larry SobalLarry Sobal is Executive Vice President and a Senior Consultant at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and health insurance. Larry consults, writes and presents on topics relevant to transforming physician practices and health systems. His weekly blog post comes out on Thursdays and can be accessed at


About the Author
Larry Sobal

Larry Sobal, MBA, MHA, is CEO of a yet-to-be-named cardiology practice which is transitioning from employment to an independent physician group effective January 1, 2019. He has a 37-year background as a senior executive in physician practices, consulting, medical group leadership, hospital leadership and health insurance.

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