Bundled payment, also known as episode-based payment, episode payment, episode-of-care payment, case rate, evidence-based case rate, global bundled payment, global payment, package pricing, or packaged pricing, is defined as the reimbursement of health care providers (such as hospitals and physicians) “on the basis of expected costs for clinically-defined episodes of care.” It has been described as “a middle ground” between fee-for-service reimbursement (in which providers are paid for each service rendered to a patient) and capitation (in which providers are paid a “lump sum” per patient regardless of how many services the patient receives).

Advocates of bundled payments note that unlike fee-for-service, bundled payment discourages unnecessary care, encourages coordination across providers, and potentially improves quality. Unlike capitation, bundled payment does not penalize providers for caring for sicker patients. Bundling payment provides additional advantages to providers and patients alike, through removing inefficiency and redundancy from patient-care protocols; e.g. duplicate testing, delivering unnecessary care, and failing to adequately provide postoperative care.

This method of payment is also said to provide transparency for consumers by fixing pricing and publishing cost and outcomes data. Patients would be able to choose a provider based on a comparison of real data, not word of mouth. Bundled payments may also encourage economies of scale – especially if providers agree to use a single product or type of medical supply – as hospitals or integrated health systems can often negotiate better prices if they purchase supplies in bulk.

On the other hand, the scientific evidence in support of it has been described as “scant.” It does not discourage unnecessary episodes of care; for example, physicians might hospitalize some patients unnecessarily.

Providers may seek to maximize profit by avoiding patients for whom reimbursement may be inadequate (e.g., patients who do not take their drugs as prescribed), by overstating the severity of an illness, by giving the lowest level of service possible, by not diagnosing complications of a treatment before the end date of the bundled payment, or by delaying post-hospital care until after the end date of the bundled payment.

Meanwhile, early evidence indicates that Medicare’s bundled-payment pilot, the Bundled Payment Care Initiative, has helped participating providers improve the quality of care while better managing healthcare costs. Should more detailed findings confirm these outcomes, Medicare could decide to expand the range of clinical services it wants covered by a bundled-payment arrangement.