Bundled Payment Fails to Gain a Foothold in California

The Experience of the IHA Bundled Payment Demonstration

Published in: Health Affairs, v. 33, no. 8, Aug. 2014, p. 1345-1352

Posted on RAND.org on August 04, 2014

by M. Susan Ridgely, David De Vries, Kevin J. Bozic, Peter S. Hussey

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Research Questions

  1. Can bundled payment be implemented for orthopedic procedures by multiple payers and hospital-physician partners across California?
  2. How does bundling payment affect quality and costs of care for orthopedic procedures?

To determine whether bundled payment could be an effective payment model for California, the Integrated Healthcare Association convened a group of stakeholders (health plans, hospitals, ambulatory surgery centers, physician organizations, and vendors) to develop, through a consensus process, the methods and means of implementing bundled payment. In spite of a high level of enthusiasm and effort, the pilot did not succeed in its goal to implement bundled payment for orthopedic procedures across multiple payers and hospital-physician partners. An evaluation of the pilot documented a number of barriers, such as administrative burden, state regulatory uncertainty, and disagreements about bundle definition and assumption of risk. Ultimately, few contracts were signed, which resulted in insufficient volume to test hypotheses about the impact of bundled payment on quality and costs. Although bundled payment failed to gain a foothold in California, the evaluation provides lessons for future bundled payment initiatives.

Key Findings

  • A demonstration effort failed to achieve its goals of implementing bundled payment for multiple procedures and conditions across multiple payers and hospital-physician partners.
  • Patient volume was too low to motivate providers and payers to make needed administrative changes.
  • Other barriers included a lack of consensus about how to define the bundles, regulatory uncertainty, administrative burden, and lack of trust between hospitals and health plans.


  • Keep the bundle definitions simple.
  • Implement appropriateness criteria.
  • Manage distribution of risk between payers and providers.
  • Implement technical solutions to process claims.
  • Change benefit design to steer patients to participating providers.

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