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Bundled Payments: A Rising Tide for Clinical Pathways

Authored by

Joshua M Liao, MD, MSc, FACP


Department of Medicine, University of Washington School of Medicine; 

UW Medicine Value and Systems Science Lab, Seattle, WA


The author reports no relevant financial disclosures.


J Clin Pathways. 2018;4(10):58-60. doi:10.25270/jcp.2018.12.00051
Received October 4, 2018; Accepted November 20, 2018.


Joshua M Liao, MD, MSc, FACP

1959 NE Pacific St. BB1240, Box 35652

Seattle, WA 98109

Phone: (206) 616-6934

Fax: (206) 616-1895


Abstract: As a value-based payment model, bundled payments represent a key component of the ongoing nationwide shift toward value-based care. The Centers for Medicare & Medicaid Services (CMS) has led the development of bundled payment programs over the last several decades, scaling up the payment model nationwide via voluntary and mandatory programs. Early evidence suggests that, under episode-based incentives, clinicians and organizations can improve the value of care for certain episodes. The collective influence of this evidence and the continued emergence of bundled payments as a cornerstone payment model poses several implications for pathway initiatives. First, a bundled payment perspective can reduce confusion and increase consistency of pathway initiatives within and across institutions. Second, because bundled payments and pathways share an episode focus, spread of bundled payments can create the analogous potential and imperative to rapidly scale clinical pathway work. Third, organizations can use clinical pathways as tools to help identify factors that can explain when and how bundled payments impact care in different settings. Collectively, these efforts can further solidify clinical pathways as a foundational element of value-based care.

As an episode-based, value-based payment model, bundled payments hold clinicians and organizations accountable for episode-specific quality and costs and provide financial incentives for those that maintain episode costs below predefined benchmarks. Increasingly, bundled payments represent a key component of the ongoing nationwide shift toward value-based care. 

This article provides an overview of recent nationwide bundled payment programs and describes how growing emphasis on the payment model poses 3 implications for organizations developing and implementing clinical pathways. In particular, bundled payments can (1) increase pathway consistency within and across institutions; (2) possess an episode focus that can align naturally with and increase emphasis on pathway development; and (3) provide organizations with added incentives to use pathways and identify factors that explain when and how bundled payments impact care in different situations. 

While more evaluations and examples are needed to fully elucidate the relationship between pathways and bundled payments as a new payment arrangement, the concepts and early examples described in this article provide a foundational overview for how these types of payments can potentially create incentives and opportunities for driving improvement through pathways.

Medicare Bundled Payment Programs

The Centers for Medicare & Medicaid Services (CMS) has led the development of bundled payment programs over the last several decades. The agency first began testing the payment arrangement in the 1990s and also in 2009 through several small demonstration projects. Based on success in those programs, CMS scaled up bundled payments nationwide in 2013 through the Bundled Payments for Care Improvement (BPCI) initiative.1

The largest existing voluntary bundled payment program until its recent conclusion in September 2018, BPCI engaged physician groups, hospitals, and post-acute care providers around the country in bundling up to 48 inpatient clinical episodes, each of which consisted of discrete triggers (ie, initiating events) and predefined durations. By far the most influential and policy salient of 4 participation models in BPCI was Model 2, in which episodes were triggered by inpatient hospitalization and spanned 90 days of post-acute care. 

While more definitive program evaluation is needed, early evidence suggests that BPCI has improved the value of care for certain episodes. For example, hospital participation in medical episodes such as heart failure and chronic obstructive pulmonary disease was not associated with changes in episode payments or other outcomes.2 However, participation in BPCI Model 2 for joint replacement bundles was associated with stable-to-improved quality and reduced episode costs,3 with high performers achieving up to 21% reductions in episode spending.4

CMS used positive results from BPCI Model 2 to design several additional bundled payment programs. First, in 2016, the agency used it to implement an ongoing mandatory orthopedic joint replacement bundled payment program, the Comprehensive Care for Joint Replacement (CJR) model.5 In the first year of CJR, nearly half of participating hospitals achieved episode savings by containing costs below target amounts while maintaining quality.6 Second, CMS extended many key features of BPCI Model 2 into the Bundled Payments for Care Improvement-Advanced (BPCI-A) model, a new voluntary program that began recently in October 2018 and offers physician groups and hospitals the opportunity to bundle up to 29 inpatient and 3 outpatient episodes.7 

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