Medicare’s Bundled Payment Initiatives for Hospital‐Initiated Episodes: Evidence and Evolution

Context: Bundled payments have been promoted as an alternative to fee‐for‐service payments that can mitigate the incentives for service volume under the fee‐for‐service model. As Medicare has gained experience with bundled payments, it has widened their scope and increased their duration. However, there have been few reviews of the empirical literature on the impact of Medicare’s bundled payment programs on cost, resource use, utilization, and quality.

Methods: We examined the history and features of 16 of Medicare’s bundled payment programs involving hospital‐initiated episodes of care and conducted a literature review of articles about those programs. Database and additional searches yielded 1,479 articles. We evaluate the studies’ methodological quality and summarize the quantitative findings about Medicare expenditures and quality of care from 37 studies that used higher‐quality research designs.

Findings: Medicare’s bundled payment initiatives have varied in their design features, such as episode scope and duration. Many initiatives were associated with little to no reduction in Medicare expenditures, unless large pricing discounts for providers were negotiated in advance. Initiatives that included post–acute care services were associated with lower expenditures for certain conditions. Hospitals may have been able to reduce internal production costs with help from physicians via gainsharing. Most initiatives were not associated with significant changes in quality of care, as measured by readmission and mortality rates. Of the significant changes in readmission rates, the results were mixed, showing increases and decreases associated with bundled payments. Some evidence suggested that worse patient outcomes were associated bundled payments, although most results were not statistically significant. Results on case‐mix selection were mixed: Several initiatives were associated with reductions in episode severity, whereas others were associated with little change.

Conclusions: Bundled payments for hospital‐initiated episodes may be a good alternative to fee‐for‐service payments. Bundled payments can help slow the growth of payer spending, although they do not necessarily reduce absolute spending. They are associated with lower provider production costs, and there is no overwhelming evidence of compromised quality. However, designing a bundled payment contract that is attractive to both providers and payers proves to be a challenge.

Keywords: bundled payment, prospective payment, alternative payment model, cost containment, Medicare.

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