Is Medicare Embracing Bundled Payment Models?

Although fee-for-service remains the dominant billing approach, Medicare and other healthcare programs are increasingly adopting bundled payment models.

Traditionally, medical billing charges patients for each individual service rendered.

In contrast, bundled payments consolidate all costs related to an "episode of care" into a single, comprehensive charge. This means patients receive one bill covering the entire treatment rather than separate charges for each service.

This approach is designed to lower healthcare expenses while maintaining high-quality care. Bundled payments fall under the category of alternative payment models (APMs) actively promoted by Medicare.

In 2015, the Medicare Access and CHIP Reauthorization Act (MACRA) was enacted, marking a significant shift towards APMs and away from the traditional fee-for-service system.

Under these models, healthcare providers receive payments through various innovative structures instead of standard fee-for-service reimbursements. Participating facilities are rewarded with an annual 5% bonus.

Understanding How Bundled Payments Operate

For instance, during childbirth, a conventional fee-for-service system would generate separate bills for each component, such as:

• hospital stay
• physician fees
• IV fluids
• medications like epidurals
• delivery room charges

With bundled payments, all these services are combined into a single charge for the entire labor and delivery episode.

The payment amount is predetermined, meaning it remains fixed whether fewer or more services are utilized.

Each episode has a defined trigger event—like the onset of labor—that initiates the billing period covering a standard duration of care.

The patient and insurer receive one consolidated bill reflecting the complete labor and delivery costs.

When Are Bundled Payments Typically Applied?

There is ongoing discussion about which medical services are best suited for bundled payment structures.

The Affordable Care Act initially mandated bundled payments for procedures like hip and knee replacements and cardiac care. However, this requirement was rescinded in November 2017 by the Trump administration and CMS.

Despite this, Medicare and private insurers continue to encourage voluntary adoption of bundled payments. Commonly bundled services include:

• hip replacements
• knee replacements
• labor and delivery
• pacemaker implantations
• management of congestive heart failure
• heart attack treatment
• sepsis care
• stroke treatment
• urinary tract infection management

Key Takeaways

Bundled payments represent a consolidated billing method for an entire episode of care instead of itemizing each service separately. The primary objective is to reduce overall healthcare costs without compromising quality.

Medicare actively promotes bundled payments as part of its alternative payment models and offers incentives to providers who adopt this system. As healthcare continues to evolve in the U.S., the prevalence of bundled payments is expected to grow significantly.

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