Study Fails to Show that to Care is to Share

A RAND Corporation study has revealed that a California pilot program aimed at implementing and testing bundled provider payments has failed meet its goal of spreading the cost-saving payment system. The pilot program, organized by the Integrated Healthcare Association, sought to establish bundled payment policies for orthopedic procedures through cooperation with health plans, hospitals, and physician associations. The RAND study found, in large part due to recruitment and regulatory barriers, the pilot initiative failed to meet its goal of establishing bundled payments as a payment strategy across multiple payers and providers.

Bundled Payments

According to a RAND release on the study, the bundled payment strategy seeks to save costs by paying doctors and providers a single fee for performing a procedure or caring for a patient. When a patient is admitted for something like a knee replacement, all of the care related to that procedure would be paid for with a single lump sum and would then be divided among those responsible for providing the care. The intention of the strategy is to encourage cooperation among providers, eliminate excess care, and improve the quality of the care provided.


The attention given to bundled payments has grown since the Protection and Affordable Care Act (ACA) (P.L. 111-148) promoted the strategy. Under section 3021 of the ACA, the CMS Innovation Center was created and charged with developing innovative payment methods. One initiative started by the Innovation Center is known as The Bundled Payments for Care Improvement initiative (BPCI), which is devoted to expanding the use of the bundled payment strategy. According to CMS, 105 Medicare providers are already accepting payments under the BPCI and thousands more are planning to accept bundled payments in the future.

Pilot Program

The California based program was a three year effort that began in 2010. The program focused narrowly on using bundled payments for orthopedic procedures, such as total knee replacements, in commercially insured patients under age 65. Initially, the program looked promising and it had recruited several participants including the state’s largest health plans, eight hospitals, and an independent practice physician’s association. However, participation quickly started to dwindle when insurers lost faith in the payment strategy or decided that the system was incompatible with their existing business model. Ultimately only two hospitals signed on to the program and the hospitals experienced low levels of orthopedic procedure cases over the three year period.

Further problems stemmed from regulatory delays. In part due to the difficulties in definitions about what types of cases belonged in a bundle, regulatory contract approval interruptions limited the success of the project. Participants and stakeholders also indicated that hardship stemmed from bundle definitions that were too narrow to include enough procedures to make the bundled payment a viable financial alternative for providers.


The Rand study determined that the program failed to meet its goals. With low participation and a low volume of cases, the pilot program was unsuccessful in shedding light on the success of the bundled payment model. However, according to RAND, Integrated Healthcare Association gained valuable experience regarding the implementation of bundled payment systems and has learned lessons which will make future attempts more successful.