What Is a Bundled Rate for Healthcare?

A bundled rate is a combined fee charged for all medical services involved in a procedure, for example, heart surgery. It may help lower healthcare costs.

When you think of costs for multiple, related services bundled together into one fee, all-inclusive vacations or beauty treatments at a spa might come to mind. This type of everything-is-included price is common and popular because it typically saves money, and you know exactly what your payment will be.

A similar concept is gaining ground in another area of life, payment for healthcare. Specifically, it’s known as a bundled rate.

What is a bundled rate for healthcare?

It’s a total fee for doctors, hospital, tests, imaging, and other healthcare provider services. The amount is calculated based on the expected costs of all items and services a patient receives while undergoing what is known as an “episode of care” — in other words, a specific procedure like a knee replacement or heart bypass surgery and care before and after the surgery.

Under a typical bundled rate agreement, a healthcare provider receives payment from an insurer for a fixed, lump-sum amount, which is then paid to the facilities and providers involved with a patient’s care. For example, a bundled rate for knee surgery would include all imaging needed to plan the operation, lab tests, fees paid to the surgeon and anesthesiologist, care after the surgery, and any other medical expenses related to the procedure.

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Potential financial and healthcare advantages of a bundled rate for healthcare

Bundled payments are not a new concept. Since 2013, the Centers for Medicare and Medicaid Services (CMS) has tested and compiled data on voluntary bundled payment plans to see if hospitals and doctor group practices with a single, preset payment for all the services required for an episode of care reduced medical cost while maintaining a good quality of care.

As healthcare costs have risen dramatically, and a push toward healthcare reform has gained ground, there’s increasing interest in how well a bundled rate can curtail costs, while improving the efficiency and quality of medical care.

To address those issues, National Institutes of Health (NIH) researchers looked at possible advantages and disadvantages of a bundled rate. Previous studies found large variations in healthcare costs associated with traditional fees paid individually for hospitalization, physician services, readmissions, and post-acute care. That, the NIH team noted in their report, highlights the potential for a one-fee-for-all bundled payment to lower healthcare costs, at least for certain procedures.

The most common way hospitals, doctors, and other healthcare providers are paid is fee-for-service model. Each facility and care provider files individual claims with insurers, even when all the services were for a single surgery or other episode of care. The process encourages “fragmented care,” according to the NIH study, offering little incentive for communication across multiple healthcare providers to help curtail costs (to make sure tests are not repeated unnecessarily, for instance).

On the other hand, a bundled rate can help align the care and services of all providers involved in one surgery or other episode of care, lowering costs.

Bundled rates for certain areas of healthcare may have the most impact. Cardiovascular care is a case in point because treating cardiovascular disease involves multiple providers from different disciplines (primary care, cardiology, radiology, cardiac surgery, and anesthesiology). Heart patients are also often cared for in several facilities, including a hospital, outpatient clinics, and skilled nursing facilities.

“Given all these factors, bundled payments have the potential to substantially improve care coordination and generate savings for cardiovascular care,” the research team concluded.

More bundled rate payments for healthcare are likely ahead

Although research continues, there is evidence a bundled rate for healthcare can lower medical costs. For example, the CMS launched the Comprehensive Care for Joint Replacement — a mandatory bundled rate payment for joint replacement surgery in 25 percent of hospitals nationwide. The results showed that, within a year, almost 50 percent of the 799 hospitals required to participate in the bundled rate reduced joint replacement costs while retaining quality care.

The next generation of bundled payments is expected to offer more types of bundled payment types beyond joint replacement, which is currently the most popular use of this type of fee structure.

What’s more, a growing base of healthcare providers are actively participating in bundled rate payments for medical services. More employer-sponsored health insurers are also incorporating bundled payments in their coverage to reduce costs.

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