Bundled Payments for Care Improvement

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Recent Updates:

09/06 - Announced: 09/12 webinar on Models 2-4 application consideration & next steps

06/20 - Online application ICD-9 Code exclusions, important application information now posted. Models 2-4 applications remain due by 5pm ET, June 28, 2012.

05/23 - Updated Application Guidance document posted for Models 2-4 applicants.

September 06, 2012 Update:

Thank you for your continued engagement in Models 2, 3, and 4 of the Bundled Payments for Care Improvement initiative. We have received a very enthusiastic response from providers across the country. Over the last two months we have reviewed the many proposals, which included thousands of episode definitions, identified points of commonality, and considered numerous key policy and operational issues inherent in designing the Bundled Payment model on a sizable scale.

We are now moving to the next stage of this process by convening technical panels to review the applications over the next several weeks. We anticipate contacting candidates recommended by the review panels in early October to share additional information on the work we have done on model definition and other policy and operational issues and to respond to questions.

Over the next several weeks we also will conduct a webinar update and resume learning sessions to take advantage of the great work being done in the private sector around episode-based payment and care redesign. We look forward to working with you, and will make every effort to keep you apprised of our plans in this exciting effort to redesign care through episode payment.


Under the Bundled Payments initiative, CMS would link payments for multiple services patients receive during an episode of care. For example, instead of a surgical procedure generating multiple claims from multiple providers, the entire team is compensated with a “bundled” payment that provides incentives to deliver health care services more efficiently while maintaining or improving quality of care. Providers will have flexibility to determine which episodes of care and which services would be bundled together.

The Bundled Payments for Care Improvement initiative is seeking applications for four broadly defined models of care, three of which would involve a retrospective bundled payment arrangement, with a target price (target payment amount) for a defined episode of care and one of which would be paid prospectively. Read the Fact Sheet (PDF).


Medicare currently makes separate payments to providers for the services they furnish to beneficiaries for a single illness or course of treatment, leading to fragmented care with minimal coordination across providers and health care settings. Payment is based on how much a provider does, not how well the provider does in treating the patient.  

Research has shown that bundled payments can align incentives for providers – hospitals, post acute care providers, doctors, and other practitioners– to partner closely across all specialties and settings that a patient may encounter to improve the patient’s experience of care during a hospital stay in an acute care hospital, and during post-discharge recovery.


Initiative Details: 2 Payments Types, 4 Models

The Centers for Medicare & Medicaid Services (CMS) is working in partnership with providers to develop models of bundling payments through the Bundled Payments initiative. The Bundled Payments initiative is seeking applications for four broadly defined models of care.  

Retrospective Bundled Payments

In these models, CMS and providers would set a target payment amount for a defined episode of care. Applicants would propose the target price, which would be set by applying a discount to total costs for a similar episode of care as determined from historical data. Participants in these models would be paid for their services under the Original Medicare fee-for-service (FFS) system, but at a negotiated discount. At the end of the episode, the total payments would be compared with the target price. Participating providers may share the gains resulting from the more efficient redesigned care model.  

Model 1: Retrospective Acute Care Hospital Stay Only. The episode of care would be defined as the inpatient stay in the general acute care hospital. Medicare will pay the hospital a discounted amount based on the payment rates established under the Inpatient Prospective Payment System (IPPS). Medicare will pay physicians separately for their services under the Medicare Physician Fee Schedule. Hospitals and physicians will be permitted to share gains arising from better coordination of care. 

Model 2: Retrospective Acute Care Hospital Stay plus Post-Acute Care. The episode of care would include the inpatient stay and post-acute care and would end, at the applicant’s option, either a minimum of 30 or 90 days after discharge. 

Model 3: Retrospective Post-Acute Care Only. The episode of care would begin at initiation of post-acute care with a participating Skilled Nursing Facility (SNF), Inpatient Rehabilitation Facility (IRF), Long-Term Care Hospital (LTCH) or Home Health Agency (HHA) within 30 days of discharge from the inpatient stay and would end no sooner than 30 days after the initiation of the episode. In both Models 2 and 3, the bundle would include physicians’ services, care by the post-acute provider, related readmissions, and other Part B services proposed in the episode definition such as clinical laboratory services; durable medical equipment, prosthetics, orthotics and supplies (DMEPOS); and Part B drugs. The target price will be discounted from an amount based on the applicant’s historical fee-for-service payments for the episode. Payments will be made at the usual fee-for-service payment rates, after which the aggregate Medicare payment for the episode will be reconciled against the target price. Any reduction in expenditures beyond the discount reflected in the target price will be paid to the participants to share among the participating providers.  

Prospective Bundled Payments

Model 4: Acute Care Hospital Stay Only. CMS would make a single, prospectively determined bundled payment to the hospital that would encompass all services furnished during the inpatient stay by the hospital, physicians and other practitioners. Physicians and other practitioners would submit “no-pay” claims to Medicare and would be paid by the hospital out of the bundled payment.


Additional Information on the Bundled Payments for Care Improvement Initiative