Toward Accountable Payment

A breakdown of the four BPCI bundling models

by Rob Lazerow

Rob Lazerow and David Clain

Medicare’s Bundled Payments for Care Improvement (BPCI) initiative is up and running, and participating providers have selected a wide range of clinical conditions for their bundling programs.

Beyond selecting clinical conditions, providers also needed to choose among the four bundling models offered through the initiative. The models vary by the portions of the care continuum included, payment mechanics, and minimum discount rate.

Here are the key details of the four models.

Below you'll find the portions of the care continuum included within each option.

Here are some of the early trends we've seen.

Providers are opting for BPCI Models 2 and 3

Although providers are participating in each of the four BPCI models, Models 2 and 3 have emerged as the frontrunners, with more than 75% of participants selecting one of these two models. Despite being temporarily postponed by CMMI, 32 organizations are ultimately participating in Model 1. Fewer providers than we expected—only about 16% of participants—selected Model 4 (more on this below). Most providers decided to participate in just one of the bundling models. Only five providers elected to participate in two bundling models, with four of the five combining Model 1 with either Model 2 or 4.

Providers selected between two methods for administering bundles

When selecting among the various bundling models, providers needed to determine their preferred method for administering bundled payments. Models 2 and 3 use a retrospective, or "virtual," bundling method, while Model 4 uses a true, prospective bundling method.

Under a prospective bundling method, the hospital would receive a single, lump sum payment from Medicare and then distribute that payment among all of the providers involved in the episode of care. As a result, the hospital, surgeon, anesthesiologist, radiologist, pathologist, hospitalists, consulting physicians, and any other providers eligible under the bundle definition would all share the single prospective payment.

Under a retrospective bundling method, all providers would continue to receive their individual fee-for-service payments at standard reimbursement rates directly from Medicare. After an episode concludes, Medicare would complete a reconciliation process, calculating the total reimbursement paid out to providers for the episode and comparing that aggregate amount to the pre-established bundle price. If the aggregate provider reimbursement amount were less than the bundled rate, Medicare would pay the providers the difference. If, however, providers were reimbursed more than the stated bundled rate, they would need to repay the overage amount to Medicare.

Ultimately, prospective and retrospective bundling methods represent two sides of the same budgetary coin. Regardless of the method of payment, both prospective and retrospective bundling models require providers to reduce the cost of care below the bundled rate to maintain profitability. The only practical difference is whether providers receive the full payment upfront or complete the reconciliation process after the episode concludes.

Participants favor the retrospective bundling option, despite elevated risk

By selecting Models 2 and 3 instead of Model 4, providers are displaying a clear preference for the retrospective bundling method over the prospective bundling method.

Retrospective bundling offers two distinct advantages. First, providers can avoid building the costly infrastructure needed to become the “banker” that collects and distributes bundled payments. Second, retrospective bundling does not alter providers’ revenue cycles, which is often appealing to independent physicians.

By selecting the retrospective bundling method under Models 2 and 3, however, providers are accepting certain tradeoffs. For example, these participants must contend with the elevated financial risk and care coordination challenge of managing patients across the continuum, including post-acute care (PAC) settings.

Additional Resources

Access our top bundled payment resources on the Medicare Payment Innovation Project homepage. Learn more about our ability to help organizations design and manage risk-based payments through our new Payment Transformation Initiative.

As always, please feel free to call or email me with your questions and comments.