Bundled payment

Bundled payment is the reimbursement of health care providers (such as hospitals and physicians) "on the basis of expected costs for defined episodes of care." It has been described as "a middle ground" between fee-for-service reimbursement (in which providers are paid for each service rendered to a patient) and capitation (in which providers are paid a "lump sum" per patient regardless of how many services the patient receives), given that risk is shared between payer and provider. Bundled payments have been proposed in the health care reform debate in the United States as a strategy for reducing health care costs, especially during the Obama administration (2009–2016). Commercial payers have shown interest in bundled payments in order to reduce costs. In 2012, it was estimated that approximately one-third of the United States healthcare reimbursement used bundled methodology. Also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing. In the mid-1980s, it was believed that Medicare's hospital prospective payment system with diagnosis-related groups may have led to hospitals' discharging patients to post-hospital care (such as skilled nursing facilities) more quickly than was appropriate, to save money. It was therefore suggested that Medicare bundle payments for hospital and posthospital care; however, despite favorable analyses of the idea, it had not been implemented, as of 2009. Bundled payments began as early as 1984, when The Texas Heart Institute, under the direction of Denton Cooley, began to charge flat fees for both hospital and physician services for cardiovascular surgeries. Authors from the Institute claimed that its approach "maintain[ed] a high quality of care" while lowering costs (in 1985, the flat fee for coronary artery bypass surgery at the institute was $13,800 as opposed to the average Medicare payment of$24,588).