If you need to get into a cold swimming pool, it’s usually better—and more painless—to just dive right in. When it comes to adopting a new payment model, on the other hand, it’s usually smarter—and less risky—to take the plunge one chilling step at a time. Health care is moving toward a value-based payment environment; there’s no question about that. But for providers who’ve been marching to the tune of fee-for-service payment since, well, forever, doing a hard about-face could prove extremely challenging—if not downright impossible. That’s why some forward-thinking physical therapists and practice owners—like Rob Worth, PT, DPT, OCS, ATC/L, president and co-owner of Wisconsin-based Advanced Physical Therapy & Sports Medicine—have embraced the so-called “gateway” value-based payment model as a way of gently easing themselves into the pay-for-performance pool: bundled payments.

By now, you’ve probably at least heard about this innovative approach to care delivery and payment distribution. (If not, hold tight; I’m going to give you a nutshell explanation in a few seconds.) But you might be struggling to determine whether it’s something you could—or, more importantly, should—introduce in your practice. After all, it’s still a relatively uncommon payment setup. (According to this FierceHealthPayer special report, “bundled payments make up less than 2 percent of all value-based contracts.”) But just because they’re not popular—yet—doesn’t mean you should rule them out: “For physical therapists to be leaders in providing cost-effective, expert musculoskeletal care in an evolving health care system, we must dedicate ourselves to innovation and collaboration,” Worth writes in this Impact article. Here, I’ll cover the basics—as well as the pros and cons—of the alternative payment model that could help you do just that.

Suppressing Sticker Shock: How to Handle Your Patients’ High-Deductible Health Plans - Regular BannerSuppressing Sticker Shock: How to Handle Your Patients’ High-Deductible Health Plans - Small Banner

What is a bundled payment model?

As this Association of Health Care Journalists (AHCJ) article explains, a bundled payment model is one in which “an insurer sets a single price for all providers (physicians, hospital, and any post-acute providers) involved in doing a procedure or delivering an episode of care.” Essentially, the payer issues a lump sum to cover all of the patient’s treatment for that particular episode. In most cases, the payer factors severity and complexity into its calculation of the lump sum.

The idea is that because all of the providers involved in a particular episode of care must work under a single budget, they’re more inclined to work together to eliminate the provision of unnecessary services. That way, everybody gets more bang for their buck, so to speak. By contrast, in the traditional fee-for-service paradigm, the only way providers can increase their revenue for a certain episode is to increase the volume of services they perform. And that leads to massive overutilization—and overspending.

To further incentivize efficient care delivery, most bundled payment contracts place both upside and downside risk on the participating providers. “With upside risk, providers share in any savings, and with downside risk, providers cover any costs over budget,” the AHCJ article notes.

Who’s bundling?

As I mentioned above, the payment bundling trend isn’t super widespread in the current healthcare landscape. That said, it has moved beyond the pilot stage, with many payers—including Medicare, Medicaid, and commercial insurers—implementing full-fledged bundled payment programs. In fact, according to a report cited in the AHCJ article, CMS “approved more than 500 organizations to participate in its Bundled Payment for Care Improvement initiative” in 2013 alone. The report also revealed that many public and private payers are in the process of increasing the scope of their bundled payment initiatives to “include more providers and more conditions.”

Currently, the two most common episodes of care that payers have designated as bundling-eligible are knee and hip replacements. As the FierceHealthPayer report explains, these procedures are especially good candidates for bundling because:

  • A high volume of patients across the country undergo knee and hip replacement surgery each year—which means that one outlier case (i.e., one that exceeds the predicted cost) won’t “blow the bundle.”
  • There is a high volume of data informing payers’ payment calculations.
  • These surgeries are elective, meaning patients are more inclined to shop around for the best deal. Thus, payers and providers have a built-in incentive to offer competitive pricing.

In his Impact article, Worth explains how his practice made its foray into payment bundling: “...we started piloting a bundled payment model in 2010 in collaboration with a private practice group of orthopedic surgeons. The bundled payment model pilot was developed with one large insurance company for a single diagnosis (total knee arthroplasties).” He goes on to say that phase two of his practice’s bundled payment program will involve contracting with additional payers as well as working directly with employers. He also plans to extend the bundled payment program beyond TKA episodes, incorporating “many of the common post-operative conditions that we see in physical therapy practices, such as anterior cruciate ligament reconstructions, rotator cuff repairs, and more.”  

In fact, payers have started creating bundled payment programs around a wide variety of episodes. As the AHCJ reports, examples include:

  • attention deficit hyperactivity disorder
  • coronary artery bypass graft surgery
  • colonoscopy
  • congestive heart failure
  • developmental disabilities
  • perinatal care
  • tonsillectomy
  • upper respiratory infection
  • bariatric surgery
  • cataract removal
  • adjuvant breast cancer
  • pregnancy

Why bundle?

There are plenty of reasons for PTs to consider participating in bundled payment programs. Chief among them: market conditions are ripe for cost-effective alternative payment models like bundling. As Worth explains in the Impact article, employers and individuals are seeing significant increases in the cost of health care and health coverage—which means there’s plenty of demand for lower, more predictable costs. On the other side of the equation, providers are increasingly capable of forming accurate outcomes predictions—which means there’s a vast supply of untapped potential in the efficient care department. And as we all learned in economics 101, when supply meets demand—boom!—you’re in business.


In his article, Worth breaks down the benefits for all parties involved in a bundled payment contract:

  • Patients pay lower out-of-pocket costs. For example, a patient’s entire outpatient therapy treatment may fall under a single copay.
  • Payers can more effectively manage payments and overall costs as the lump sum allows for better cost predictability. Furthermore, they can shift the payment focus away from volume—and toward outcomes. This gives them better marketing power.
  • Providers can offer more affordable prices as well as decrease the administrative costs associated with claim submission and follow-up. Plus, physical therapists, specifically, can assert greater authority as patient care managers.


Those are certainly some pretty enticing pros, but as with any alternative solution, there are some possible drawbacks worth considering, too. Here are a few that healthcare writer Jim Romeo brought to light in this PT in Motion article:

  • Some bundled payment contracts may encourage underprovision of services or early discharge—which, in turn, could put patient outcomes at risk.
  • Without a neutral gatekeeper, it could be difficult to fairly distribute payment among all providers involved in an episode—especially when the degree of each provider’s contribution could vary from case to case.
  • Providers who deviate from the predetermined plan of care could suffer negative financial consequences—even if the deviation was in the patient’s best interest.

I bring up these potential negatives not to completely scare you away from payment bundling, but to encourage you to approach bundled payment agreements with caution. In other words, don’t jump into a contract you don’t fully understand. Furthermore, as Worth advises, make sure your program features:

  • High-quality, trustworthy physicians and insurance company collaborators
  • An emphasis on outcomes tracking as a means for driving program improvement
  • Patient-focused language and objectives

Are you thinking about jumping—or, at the very least, dipping a toe—into the bundled payment pool? What questions do you have? Share your feedback in the comments section below.      

  • America’s Next Top Payment Model: The Move to Pay-for-Quality Image

    articleMay 11, 2015 | 9 min. read

    America’s Next Top Payment Model: The Move to Pay-for-Quality

    Your mission, should you choose to accept it, is to provide higher-quality care at a lower cost. With the healthcare industry’s fast-moving transition to value-based —rather than service-based—payment systems, that’s the challenge many providers are facing. And while that mission may very well seem impossible, the truth is that rehab therapists and their peers in other medical fields don’t really have much of a choice as to whether they’ll accept it. [webform:1307:yellow inline] The winds of change …

  • CMS Can See Clearly Now, Releases PQRS Strategic Vision Image

    articleMay 21, 2015 | 3 min. read

    CMS Can See Clearly Now, Releases PQRS Strategic Vision

    All month long, we’ve talked about the healthcare industry’s rapid evolution from the fee-for-service Stone Age to the pay-for-performance Enlightenment Period. Yes, payment reform is upon us , but don’t take our word for it—take it straight from America's largest payer of healthcare services: The Centers for Medicare and Medicaid Services (CMS). In an effort to “contribute to improved healthcare quality across the nation,” CMS recently published the Physician Quality Reporting Programs Strategic Vision , detailing a …

  • What to Look for in a PT Biller Image

    articleJul 28, 2015 | 4 min. read

    What to Look for in a PT Biller

    In the words of American rock legend Tom Petty, “Good love is hard to find.” While I agree wholeheartedly with Mr. Petty’s wisdom, I think some rehab therapy practice owners might say good employees are even harder to find. And that certainly applies in the billing department. After all, your clinic’s billing operation is crucial to its financial well-being. One bad hire could mean the difference between your clinic achieving private practice rockstardom and hitting rock bottom. …

  • Triumph in the Triple-Aim Game: The Healthcare Executive’s Guide to Readmission Reduction, Patient Safety Promotion, and ACO Success Image

    downloadSep 28, 2016

    Triumph in the Triple-Aim Game: The Healthcare Executive’s Guide to Readmission Reduction, Patient Safety Promotion, and ACO Success

    The Affordable Care Act (ACA) and other reform efforts have brought forth a renewed emphasis on care coordination at all points along the care continuum—including the period after hospital discharge. As part of this push, new financial incentives and penalties have put healthcare executives at the center of a high-pressure game of tug-of-war in which they must simultaneously improve care quality and reduce costs. Talk about a catch-22. Enter your email address below to download this guide …

  • Fight for Your Right to PT: 10 To-Dos from the 10th Annual Graham Sessions Image

    articleJan 24, 2017 | 17 min. read

    Fight for Your Right to PT: 10 To-Dos from the 10th Annual Graham Sessions

    The first rule of the Graham Sessions is that you don’t talk about the Graham Sessions. Well, sort of. This annual “think tank” event isn’t quite as clandestine as Fight Club, but the rules are definitely a bit different than those associated with any other PT industry conference. After all, the point of this meeting is, quite simply, to talk—to have real, open, honest conversations about the controversial issues facing the physical therapy community. And to ensure …

  • Final Thoughts from CSM: Outcomes, Payment Reform, and—Purple Cows? Image

    articleFeb 9, 2015 | 19 min. read

    Final Thoughts from CSM: Outcomes, Payment Reform, and—Purple Cows?

    By Saturday morning, attendees of the APTA’s Combined Sections Meeting (CSM) were moving with a little less pep in their step—and a couple extra shots of espresso in their morning coffee. Still, the educational sessions on the final day of CSM were chock full of eager learners looking to eat up a few more morsels of wisdom before catching their planes home from Indy. Here are some highlights from day three’s informational smorgasbord (check out recaps from …

  • The PT Patient's Guide to Understanding Insurance Image

    downloadApr 3, 2017

    The PT Patient's Guide to Understanding Insurance

    Patients are shouldering a greater portion of their healthcare costs than ever before. But when they don’t know the specifics of their coverage, they can end up with much bigger bills than they bargained for—and that often leads to unpaid balances and unfinished treatment plans. Bring them up to speed—and improve your practice’s collections and patient retention—with this guide. Patients will learn: What it means for a service to be “covered.” How to define common insurance terms. …

  • The Bundle Conundrum: Should PTs Participate in CJR? Image

    articleNov 9, 2016 | 6 min. read

    The Bundle Conundrum: Should PTs Participate in CJR?

    There a lot of hot topics in health care right now. Among top trending terms like “Affordable Care Act,” “pay-for-performance,” and “value-based care,” you’ve also probably heard “Medicare bundled payments”—specifically, “CJR” (or Comprehensive Care for Joint Replacement ). It’s a new bundled payment model from CMS, and it is of particular importance to outpatient rehab providers. As this article explains, “CJR will support better care for patients who are undergoing elective hip and knee replacement surgeries—the two …

  • Six Signs You Need a New Physical Therapy Billing System Image

    articleJun 9, 2014 | 4 min. read

    Six Signs You Need a New Physical Therapy Billing System

    Are you happy with your billing system? Would you recommend it to a friend? Those might be tough questions to answer truthfully, especially if you’re the one who chose the billing software your practice currently uses. Still, if your billing—or revenue cycle management—system isn’t living up to expectations, then your practice may be due for a change. I know; change can be tedious, overwhelming, and disruptive. So, how do you know it’s truly worth ditching your current …

Achieve greatness in practice with the ultimate EMR for PTs, OTs, and SLPs.