Increase the Use of "Bundled" Payment Approaches

by John Bertko, Rachel Effros

This Article

RAND Health Quarterly, 2011; 1(3):15


This article explores how increased use of bundled payment approaches would affect health system performance along seven dimensions. Bundled payment approaches have the potential to reduce spending, consumer financial risk, and waste. Evidence is mixed regarding how these approaches would affect health. There is no good evidence about the effects of bundled payments on reliability of care or patient experience. Bundled payment approaches are not applicable to coverage or health system capacity. Implementing bundled payment approaches would require fundamental changes in the way that health care providers bill and are paid for services.

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Full Text

Analysis of Bundled Payment

Also known as “case rates” or “episode-based payment,” a bundled payment is a single payment for all services related to a specific treatment or condition (for example, coronary artery bypass graft surgery or CABG), possibly spanning multiple providers in multiple settings. Providers would assume financial risk for the cost of services for a particular treatment or condition as well as costs associated with preventable complications.

These are the seven performance dimensions against which we measured bundled payment:

  • Spending
  • Consumer Financial Risk
  • Waste
  • Reliability
  • Patient Experience
  • Health
  • Operational Feasibility


Bundled payment approaches have the potential to reduce spending:

  • Bundled payment approaches create incentives for providers to eliminate unnecessary services and reduce costs.
  • From the limited evidence in the literature, we would expect that bundled payment approaches involving multiple providers would lead to decreased spending.
  • Savings will depend on the design of the payment system and the particular services that are bundled.

Consumer Financial Risk

Bundled payment has been shown to reduce consumer financial risk, but the evidence is limited to a single evaluation of a demonstration project:

  • If bundled payment results in reduced service utilization and costs, the savings are likely to be shared by consumers.


Based on limited evidence, bundled payment is expected to reduce waste:

  • Bundled payment approaches are expected to create incentives for physicians and hospitals to improve efficiency in patient care.
  • A few studies have shown that bundled payment approaches have improved efficiency.


Bundled payments to multiple providers are designed to provide incentives to improve the reliability of care, but we know of only one study that demonstrates this relationship:

  • Bundled payment provides incentives that could lead providers to examine care processes to improve reliability.
  • Bundled payment approaches are often proposed in tandem with other mechanisms, such as pay for performance, that aim to improve reliability.

Patient Experience

We know of no studies that have assessed how bundled payment approaches affect patient experience:

  • Bundled payment to multiple providers could potentially improve patient experience through improved outcomes, reduced complications, improved care coordination and simplification of billing procedures for patients. On the other hand, patient experience could decline if doctors have less time to spend with patients or if patients have fewer choices of physicians under a bundled payment approach.


Evidence is mixed regarding the effect of bundled payment approaches on health:

  • In theory, bundled payments to multiple providers surrounding a hospital episode of care should encourage care coordination and lead to improved health outcomes.
  • The examples of this type of bundled payment approach are limited, and the health outcomes are mixed.

Operational Feasibility

Implementing bundled payment approaches would require fundamental changes in the way that health care providers bill and are paid for services:

  • The implementation of bundled payment approaches would require a broad set of operational decisions.
  • Significant challenges would be related to the determination and distribution of payments.
  • The Medicare Payment Advisory Commission (MedPAC) has proposed a strategy for implementation of a bundled payment approach by Medicare.

RAND Health Quarterly is produced by the RAND Corporation. ISSN 2162-8254.