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.

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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.      

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