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Episode of Care Payments Health

Episode of Care or Bundled Payments - Health Cost Containment

Updated August 2014

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The following NCSL Issue brief has been distributed to legislators and legislative staff across the country.

Episode-of-Care Payments - PDF File   |    Colorado Supplement: Episode-of-Care Payments - PDF File

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Cost Containment Strategy and Logic

Episode-based payments are at an early stage of development and use, but interest in them is growing. In contrast to traditional fee-for-service reimbursement where providers are paid separately for each service, an episode-of care payment covers all the care a patient receives in the course of treatment for a specific illness, condition or medical event. Examples of episodes of care for which a single, bundled payment can be made include all physician, inpatient and outpatient care for a knee or hip   replacement, pregnancy and delivery, or heart attack. Savings can be realized in three ways: 1) by negotiating a payment so the total cost will be less than fee-for-service; 2) by agreeing with providers that any savings that arise because total expenditures under episode-of-care payment are less than they would have been under fee-for-service will be shared between the payer and providers; and/or 3) from savings that arise because no additional payments will be made for the cost of treating complications of care, as would normally be the case under fee-for-service.
Episode-of-care payments also are known as case rates, evidence-based case rates, condition-specific capitation and episode-based bundled payments.

Summary of Health Cost Containment and Efficiency Strategies- Brief #3- Episode-of-Care Payments

State/Private Sector Examples  Strategy Description Target of Cost Containment Evidence of Effect on Costs
Maryland, Massachusetts, Minnesota, PROMETHEUS program A single payment for all care to treat a patient with a specific illness, condition or medial event, as opposed to fee-for-service. Lack of financial incentives for providers to manage the total cost of care for an episode of illness. 
Inefficient, uncoordinated care.
Limited research shows cost savings for some conditions. Payment mechanism is at an early stage of development. 

Recent Updates & Publications

  • Bundled Payments for Care Improvement (BPCI) Initiative: General Information

  • Uwe Reinhardt Questions Bundled Payment Savings Prospects - A new July 2013 Alliance for Health Reform video features Princeton’s Uwe Reinhardt questioning whether bundling payments for medical services might actually lead to higher – not lower – costs. "The ACO's, the accountable care organizations, could create local monopolies that could dictate to you what that bundled price would be, and some of us fear that bundled prices might be even more than what the fee-for-service for that bundle would be today. … You really should align all the payers and say, 'Let us jointly negotiate with the ACOs what those bundles should be so that they cannot divide and rule and sort of make us on the buy side weak."
    FULL TRANSCRIPT Video (2:58)   Read More

  • Bundled Payment: The Quest for Simplicity in Pricing and Tying Payment to Quality - June 11, 2013 | Issue Brief by Robert Wood Johnson.  Local initiatives are showing how new methods for paying for health care can improve quality and control costs. This paper offers four steps that organizations considering a bundled payment pilot should follow.  
         Local initiatives are showing how new methods for paying for health care can improve quality and control costs. One strategy, called bundled payment, assigns a fixed payment to cover a set of services, such as a surgery or a patient’s diabetes care, over a defined time period. Bundled payments encourage providers to manage costs, while meeting standards of high-quality care.
         Though the strategy sounds simple, implementing a different way to pay for care across health systems and communities is a complex undertaking. This brief from Aligning Forces for Quality (AF4Q), the Robert Wood Johnson Foundation’s signature effort to lift the overall quality of health care in targeted communities, examines challenges and shares lessons learned from two AF4Q communities in South Central Pennsylvania and Wisconsin.

  • Bundled Payment in Medicare: Promise, Peril, and Practice - A new report and meeting session by the National Health Policy Forum - April 2012. The Center for Medicare & Medicaid Innovation (CMMI) in the Centers for Medicare & Medicaid Services (CMS) is currently in the process of implementing the Bundled Payments for Care Improvement (BPCI) initiative. Under this initiative, CMMI has received (and continues to receive) applications from eligible participants for four broadly defined bundled payment models that will combine payments for multiple services (depending on the model) during an episode of care. Among the  goals of the BPCI are fostering quality improvement while decreasing the cost of an episode of care, giving providers flexibility to redesign care to meet the needs of their community, and removing barriers and provide opportunity for partnerships among providers and other stakeholders. [9 pp, PDF]

  • The 2014 National Bundled Payment Summitwww.BundledPaymentSummit.com, took place on June 16 - 18, 2014 in Washington, DC. It featureed sessions on: An Overview of Public and Private Bundled Payment Initiatives; CMMI Bundled Payments Update; Challenges and Opportunities of Statewide Bundled Payment Implementations; Provider Bundled Payment Strategies; Engaging Consumers in Bundled Payment Initiatives; Outpatient Bundles Update; Bundled Payments Transparency. The Summit will be offered both onsite and live and archived for 6 months over the Internet.  There are partial and full tuition scholarships to qualifying consumer advocate organizations, and health services research organizations to attend - Click here for more information. (Listing for information only; NCSL is not involved in the content or structure of this event.)

  • Testing PROMETHEUS Payment.  The Health Care Incentives Improvement Institute furthered the development and pilot testing of its Prometheus bundled payment model. Researchers at RAND and the Harvard School of Public Health evaluated the initiative at three pilot sites. Posted Jan. 2014.
  • The PROMETHEUS Bundled Payment Experiment: Slow Start Shows Problems In Implementing New Payment Models- Health Affairs, 11/11.  

About this NCSL project

NCSL’s Health Cost Containment and Efficiency Series will describe two dozen alternative policy approaches, with an emphasis on documented and fiscally calculated results. The project is housed at the NCSL Health Program in Denver, Colorado. It is led by Richard Cauchi (Program Director) and Martha King (Group Director) with Barbara Yondorf as lead researcher.

NCSL gratefully acknowledges the financial support for this publication series from The Colorado Health Foundation and Rose Community Foundation of Denver, Colorado

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