The healthcare industry is, as a whole, undoubtedly moving toward value-based care models. As such, bundled payments are quickly becoming a standard in modern practices that want to align financial incentives with better care coordination.
But what are bundled payments in healthcare ? Below, we’ll break down what they mean and how practices can implement them.
What Are Bundled Payments in Healthcare?
Bundled payments are a reimbursement approach in which a single, fixed payment covers all the services provided for a defined episode of care. By contrast, the traditional fee-for-service model generates separate bills for each visit, test, procedure, or service.
The goal of bundled payments is to reward effective coordination and incentivize different providers to work toward the same outcomes. Collaboration becomes the rational choice when all parties share one budget, one goal, and a common set of metrics.
At the same time, they help reduce redundant or unnecessary services while simplifying billing operations. Payment bundling in healthcare billing replaces multiple claims with one overarching, comprehensive claim covering every service rendered.
Bundled payments are quickly gaining traction across the healthcare market, and many leaders are viewing them as a bridge between traditional and value-based care reimbursement models.
Why Are Bundled Payments Growing in Popularity?
The primary driver behind the popularity of bundled payments is the industry-wide shift into value-based care. Payers, regulators, managers, and administrators are increasingly focused on linking reimbursement to better patient outcomes rather than volume of services.
As a result, several regulatory and payer initiatives are accelerating adoption across the market. Programs such as the CMS’ Bundled Payments for Care Improvement (BPCI) Initiative encourage hospitals and practices to move beyond traditional models.
However, when considering the broader landscape, bundled payments are only one of the three types of payment systems in healthcare. Fee-for-service, as we already mentioned, assigns payments based on each service rendered. Capitation, on the other hand, is based on fixed per-member, per-month payments regardless of services delivered.
The hybrid, middle-ground nature of bundled payments in healthcare (rendering payments based on episodes of care) makes them appealing for both payers and practices. Along with effective revenue cycle management services such as PUREDI, bundled payments can help keep billing predictable and consistent for everyone involved.
How Do Bundled Payments Work in Practice?
Bundled payments don’t apply to every single patient that comes into a practice. Only certain medical events are bundled, as payers need to establish specific prices for them. Common episodes of care that involve the use of bundled amounts include:
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Strokes
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Urinary tract infections
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Pacemakers
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Labor
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Sepsis
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Myocardial infarctions
The bundled payment process begins when a patient enters care for a qualifying episode—for example, a stroke. That episode has a corresponding target price agreed upon by the payer, taking into account the medical services likely to be rendered.
However, there are two models regarding how payments relate to that target price.
In a retrospective payment model, payers still operate under a fee-for-service arrangement, but track it against a predetermined target price for that episode of care. If the total cost exceeds the target price, the payments can be reduced.
In a prospective model, payers make a lump-sum payment, so any losses or gains run directly on behalf of providers.
After the financing approach is set, day-to-day operations look mostly the same: teams define the episode scope, standardize care pathways and objectives, and the data is sent to the payer.
Benefits of Bundled Payments for Clinicians and Patients
The benefits of payment bundling in healthcare come from financial and quality goals being shared across the whole episode. A single budget (and a single agreed-upon ideal outcome) pushes care teams to plan the whole episode as a coordinated pathway instead of disconnected services.
In practice, these standardized care plans and improved handoffs help avoid errors during transitions. Conflicting orders and duplicate services are two clear examples of errors that can be reduced through better coordination.
As for billing, staff can spend less time correcting items as one comprehensive claim will limit the back-and-forth rework.
However, bundled payments go beyond just internal improvements: patients will see better predictability and transparency during hospital visits. Bundles concentrate attention on standardizing supplies, services, medication, and follow-ups, reducing last-minute surprises across the board.
Challenges of Bundled Payments and Strategies for Success
Although the benefits far surpass the challenges, there are some operational and financial complexities when adopting bundled payments.
Margin risk rises when case severity, supply costs, post-acute utilization, and other unexpected factors exceed the target price. Contracts can be intricate, and coding must be tight enough to attribute all services to their corresponding bundle.
Data and compliance take a hit too: organizations need reliable systems to meet tight deadlines. Late documentation and missed edits can result in failing to meet payer reporting standards, leading to missed savings.
Setting and working through clear strategies can help practices avoid most of these complexities.
For starters, leaders should set clear governance for episode design and escalation pathways. Order sets, discharge criteria, follow-up milestones, and handoff requirements should be standardized to reduce unwarranted variation.
Then, real-time dashboards should allow managers to clearly track the leading indicators agreed upon with the corresponding payer. Outreach should ideally be triggered before targets are missed—and before issues domino into worse outcomes.
Finally, pre-submission edits and code validation should be tight across billing services. To check performance, leaders should take advantage of analytics to ensure RCM is properly supported during and after implementation.
Evolve to Success with PUREDI
Bundled payments continue to evolve, even if adoption isn’t as widespread as it could be. More patient and ambulatory episodes, deeper quality weighting, closer integration of remote monitoring, and broader payer participation are just some of the things that will come in the near future.
Organizations that invest now in connected data and disciplined workflows will undoubtedly be best positioned as models expand.
At PUREDI, we want to help practices improve their revenue cycle management and streamline medical billing. Analytics and smooth workflows help keep teams aligned both in terms of quality and documentation without adding administrative burden.
If you’re ready to modernize your approach to bundled payment in healthcare, request a demo today.
