Challenges ahead for next generation of bundled payments

In late 2016, HHS announced the final models for the next group of mandatory episode-based payments. Researchers at the University of Pennsylvania in a Journal of the American Medical Association (JAMA) suggested that the next generation of bundled payments should align with population health by (1) extending the duration of the bundles, (2) expanding the accountable entities beyond hospitals, and (3) integrating bundled payments with global budget models within accountable care organizations (ACOs). All hospitals accepting Medicare patients in over 90 metropolitan areas will be required to accept new bundled payments, which include a fixed payment for hospital care plus services for the 90 days following discharge of patients with acute myocardial infarction and coronary artery bypass graft surgery (see Final rule puts quality at the heart of new Medicare payment models, Health Law Daily, December 21, 2016).

In the JAMA article, the authors noted that current bundled payment models have limitations. Namely, these models retain the fee-for-service incentive to do more, especially for conditions without well-defined criteria for intervention, and to select healthier patients, potentially increasing low-value care use that offsets efficiency savings. The researchers believe bundled payments would be more efficient if restricted with defined starting points that limit physician and patient discretion.

Bundle duration

According to the authors the central challenge of current bundles is their short duration. Most cover services up to 90 days after hospital discharge; extending the bundled payments to a year or more would allow for a broader set of conditions to be included. Extending the bundle duration could also mitigate undesirable effects, such as decreasing the incentive to avoid more complex patients who may be at higher risk for poor outcomes in the short term. The authors stressed that more importantly, bundles with a longer duration could encourage greater coordination of care between specialists and PCPs.

Bypassing hospital-centric procedures

Medicare ACOs have primarily generated savings by reducing avoidable hospitalizations. Bundled payments could generate savings in a similar manner, shifting care to non-hospital-centric procedures, such as allowing outpatient clinicians such as PCPs, outpatient health centers, and ambulatory surgery centers to take on financial accountability for performance.

ACO integration

The authors suggested that for next generation bundled payments, care should be coordinated along with ACO programs by aligning incentives and proactively disseminating information on shared beneficiaries. The current policy penalizes care organizations by attributing the high historical baseline payments for patients with poor outcomes within the bundle to the ACO’s global budget rather than the actual payments, which could be lower if an ACO improves efficiency.


Regardless it was unclear to the authors whether bundles which build up the degree of financial risk a hospital or other health care organization bears is better than moving to global budgets in one step. Using bundle payment models to transition to global budgets may be the preferred strategy, giving clinicians several years to adapt and transform care delivery.