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.

So, what is a bundled rate for healthcare, exactly? 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 in medical lingo as an “episode of care” — in other words, a specific procedure like a knee replacement or heart by-pass surgery and care before and after the surgery, too.

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 specific episode of medical 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 advantages of a bundled rate for healthcare

Bundled payments are not a new concept. In fact, 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.

And, as healthcare costs have risen dramatically over the past decade, and as a push toward healthcare reform has gained ground, there’s increasing interestOK in how well a bundled rate works to curtail costs while potentially improving the efficiency and quality of medical care.

To address these 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. And that, the NIH team noted in their report, published in the journal Circulation, highlights the potential for a one-fee-for-all bundled payment to lower healthcare costs, at least for certain procedures.

So, what is a bundled rate in healthcare’s financial advantage likely to be? The most common way hospitals, doctors, and other healthcare providers are currently paid is fee-for-service, meaning 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. This encourages “fragmented care,” according to the Circulation study, and gives 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), the researchers explained. What’s more, heart patients are 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 in their Circulation paper.

Bottom line: 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, in 2016, the CMS launched the Comprehensive Care for Joint Replacement (CJR) — 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. And more employer-sponsored health insurers are incorporating bundled payments in their coverage to reduce costs.

So, it makes sense to understand what a bundled rate for healthcare is and how it might impact you, under either private or employee insurance and through Medicare or Medicaid.

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