E1 – Potential Expansion in Mandatory Bundled Payment Models

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For the month of August, Avalere will cover what the new proposed changes to existing bundled payment programs could mean for the healthcare industry. In an exclusive series, experts will discuss what the new bundles include and where to go from here. Kicking off this series is Fred Bentley from our Center for Payment and Delivery Innovation.
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“The new rules provide greater flexibility for gainsharing.” Fred Bentley, Avalere


Fred Bentley , Managing Director, Center for Healthcare Transformation

Fred Bentley advises clients on health delivery and payment innovation, providing analytic and strategic insight on issues related to the delivery of care.

This interview was originally published as a podcast. The audio is no longer available, but you can read the transcript below. For updates on our newly released content, visit our Insight Subscription page.


Fred: First, a quick primer. CMS issued a proposed rule on July 25 that includes several changes and updates to existing bundled payment programs, including the addition of hip and femur fracture treatment to the current orthopedics-focused Comprehensive Care for Joint Replacement (CJR) program. What’s most striking, though, is the potential creation of mandatory bundled payment models for several high-volume cardiac services, including cardiac bypass surgery, stent-based treatment, and medical management of heart attack patients.

In some important ways, these new bundled programs resemble the Bundled Payment for Care Improvement and CJR programs that CMS already has in place. The new cardiac bundles are structured so that hospitals will be held accountable for the total cost of care for the initial hospital stay as well as 90 days of post-discharge care. And, similar to the current bundled payment arrangements, CMS will continue to pay providers using the standard fee-for-service method, but at the end of each year they will compare total spending for each episode to a target price—a price that is based on the hospital’s historical costs as well as the regional average. The hospital can either earn a bonus or be required to pay a penalty depending on their cost performance. The new bundles would start to phase in on July 1, 2017, in 98 randomly selected markets across the U.S.

Although CMS intends to extend the mandatory bundled model to just a handful of new conditions, the implications for the healthcare industry are profound. At the most fundamental level, this announcement underscores the fact that—despite concerns about too much change in too little time—the Obama Administration is committed to transitioning Medicare to a value-based environment. It’s true that these models may be delayed, modified, or even scuttled, but all signs point to an increasingly bold administration flooring it on payment reform as it enters the final lap.

In addition to the broader signals the new rule sends to the industry as a whole on delivery system reform, it has very immediate and very real financial implications for hospitals and device manufacturers. While inpatient cardiac stenting and cardiac bypass volumes have been declining for several years, they still represent significant pillars of profitability for many hospitals. If CMS moves forward with the new bundles, hospitals will be pulling every lever at their disposal to drive down costs—including partnering with surgeons and interventionalists to standardize device use and dramatically increase adherence to care protocols. And, in fact, the new rules provide greater flexibility for gainsharing, and I know many of our health system clients are eager to align incentives on quality and efficiency.

The new rule has significant implications for the pharmaceutical industry as well. In addition to bundles for interventional procedures, CMS is also venturing into mandatory bundles for medical management—in this case, the nonsurgical treatment of patients who’ve suffered a heart attack. Given the central role that drugs play in managing medical management, hospitals will have a renewed interest in finding therapeutics that improve outcomes and drive down readmissions, especially those that can achieve significant outcomes within the 90-day episode.

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