Episode of Care Payments Health

Episode of Care or Bundled Payments - Health Cost Containment

Updated August 2014

Cost Containment header

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 PaymentsPDF 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

  • Inside CMS' Bundled Payments Pilot: With participation in CMS' Bundled Payments for Care Improvement (BPCI) pilot at record levels -- more than 500 healthcare organizations are currently testing four payment models with 48 clinical conditions -- interest in payment bundles has never been greater.  A new commercial report, Inside CMS' Bundled Payments Pilot: Profitable Post-Acute Care Partnerships examines opportunities presented by bundled or episodic payments, based on the experiences of naviHealth, a convener for CMS for Model 2 and Model 3 of the pilot.
    > Model 2 concerns itself with retrospective acute care hospital coupled with post-acute care episodes;
    > Model 3 is limited to retrospective post-acute care only.   
    For more information or ordering (retail price $79) contact publisher Healthcare Information Network, 8/4/2014. (Listing for information only; NCSL is not involved in the content of this publication)

  • Blueprint for Bundled Payments: Strategies for Payors and Providers - This report "provides perspectives on payment bundling, including definitions of key elements, advice for payors and providers, and examples of the payment model at work in one organization." Report available for purchase via Healthcare Information Network, Jan. 2014.

  • 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 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, will take place on June 16 - 18, 2014 in Washington, DC. It features 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.)

  • The Arkansas Innovation - New York Times Op-Ed, Sept. 6, 2012 "Mention medical innovation, and you might think of the biotech corridor around Boston, or the profusion of companies developing wireless medical technologies in San Diego. But one of the most important hotbeds of new approaches to medicine is … you didn’t guess it: Arkansas.The state has a vision for changing the way Arkansans pay for health care. It is moving toward ending “fee-for-service” payments, in which each procedure a patient undergoes for a single medical condition is billed separately. Instead, the costs of all the hospitalizations, office visits, tests and treatments will be rolled into one “episode-based” or “bundled” payment. “In three to five years,” John M. Selig, the head of Arkansas’s Department of Human Services, told me, “we aspire to have 90 to 95 percent of all our medical expenditures off fee-for-service.” Read the full article.
  • Dive into Bundled Payments or Wait? Bundled payments may be the reimbursement model of the future, but many healthcare CFOs are waiting on the sidelines. A bundled payment trial by 21st Century Oncology and Humana for radiation therapy could show the way.  Article in HealthLeaders, October 15, 2012 - online at:
  • Physician engagement is a central feature in any bundled payment initiative. Read this blog post link: June 8, 2012.
  • In late August 2011, the Center for Medicare and Medicaid Innovation – informally known as The Innovation Center – announced the launch of the Bundled Payments for Care Improvement Initiative offers hope in the battle against out-of-control health care costs. Doctors, hospitals, and other health care providers can apply to participate in this new initiative, which will test four different models of paying for services delivered across an “episode of care.” 
  • The following description was published by Health Policy Hub, a legal advocacy organization --"The new initiative seeks to change the status quo by paying providers a fee for all the services a patient receives over the course of an “episode” of care, for example, a hip replacement, rather than paying each provider separately for every service related to the episode (e.g.. inpatient stay, lab tests, post-discharge services).
  • Read the PROMETHEUS Payment newsletter- #6, June 21, 2010
  • 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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