Last month, I explained the ins and outs of payment bundling and why it could prove highly lucrative for physical therapists—especially considering the US healthcare system’s impending shift to a value-based payment environment. And while bundled payments might sound pretty great in theory, when we get down to brass tacks, the question on everyone’s mind seems to be, “Who’s cutting the payment pie, and how big will my slice be?”

If you’re looking for a simple answer, then I hate to be the bearer of bad news, but you’re not going to find one—in this blog post or anywhere else. Because as is the case with so many healthcare payment and care delivery models, payment bundling is a complex nut to crack. Luckily, I enjoy a good challenge—which is why I’ll do my best to explain the bundled payment distribution process as clearly as possible. Here goes nothing.

According to this article from the Health Care Incentives Improvement Institute, there are two main categories of bundled payment arrangements: prospective and retrospective.

Billing - Regular BannerBilling - Small Banner

Prospective Payment

In a prospective payment contract, the health plan establishes a bundled price for a particular episode of care and details the trigger criteria for that episode. When a patient meets those criteria, the insurer issues a lump-sum bundled payment to the existing provider organization (such as an accountable care organization) or—if the providers are independent outside of the bundle—to a “fiscal intermediary, which is in charge of distributing payments to all subcontracted providers,” the article notes.

Over the course of the episode, providers submit claims as they would with any other patient. Individual claims are zeroed out, but they help inform future adjustments to pricing and payment distribution.

At the end of the episode, if the total “billed” amount is less than the bundled price, the providers share the savings. Conversely, if the billed amount exceeds the bundled sum, the providers absorb the loss together.

The key to prospective payment working well in practice is correctly pricing the bundle—and accurately calculating each individual provider’s piece. Additionally, if the volume of patients is not large enough to counteract the risk associated with highly complex “outlier” cases, then the contract should feature some type of risk adjustment to protect participating providers from incurring catastrophic losses.

As the above-cited article points out, this type of payment structure typically is very consumer-friendly, as it allows for a defined patient copay. In other words, the patient knows upfront what his or her out-of-pocket cost will be for the entire episode. However, patient satisfaction hinges on the each provider’s ability to distinguish between patients who are part of a bundled pricing structure and those who are receiving treatment under a traditional fee-for-service (FFS) setup. That means all providers must have mechanisms in place to make that distinction.

Losing sleep over healthcare reform?

Enter your email address below, and we'll send you our free healthcare executive's guide to maximizing both clinical and financial results—whatever regulatory curveballs come your way.

Please enable JavaScript to submit form.

Retrospective Payment

As the name implies, retrospective payment contracts authorize the health plan to distribute payment retrospectively—that is, after the episode is complete. Providers involved in a retrospective bundled payment arrangement also submit FFS claims throughout the course of care. Then, “as claims are received for that patient, for that specific episode, they are ‘debited’ or counted against the established budget—similar to drawing down a bank account.” This ensures that, at the end of the episode, each provider gets his or her fair share of the lump sum. It also makes bundling accessible to a wide array of providers and treatment settings, as it “does not require full delivery system integration, nor does it require health plans to alter their network fee schedules.”

This setup can make payment bundling more attractive—and logistically feasible—to providers who are not already bound by an organizational agreement. “The point of these retrospectively reconciled budgets is that the plan continues to be the financial integrator of the dollars paid as opposed to delegating that responsibility to a single provider who would act as the financial intermediary for all of the other providers engaged in the provision of care for the episode,” the article explains.

Another benefit of retrospective payment contracts: they allow for greater risk control. For example, contracts may designate a “stop-loss” point at which a particularly complex—and thus, more expensive—episode of care would revert back to FFS status, thus relieving the providers from absorbing too great of a financial loss.

A retrospective payment arrangement also helps mitigate potential issues associated with the so-called “patient-leakage” problem, which occurs when a patient decides to seek care from a different provider or organization in the middle of his or her treatment. This could create some pretty nasty reconciliation headaches for providers involved in a prospective payment contract, as they already would have received their full share of the bundle prior to the patient’s early departure.

The Bottom Line

If you’re considering entering into a bundled payment contract, there are a few questions you should ask yourself—and the health plan—before signing on the dotted line. Chief among them:

  1. Who is responsible for distributing payments to the providers involved in the bundle?
  2. What other providers are participating in the bundle for this specific episode of care?
  3. Will payment be distributed prospectively or retrospectively?
  4. Does the contract include downside risk in addition to upside risk? If so, what risk adjustment provisions are in place?

Would you consider giving bundled payments a shot? Why or why not? Share your thoughts in the comment section below.

  • Past, Present, and Possibility: The Progression of Pay-for-Performance Image

    articleMay 7, 2015 | 5 min. read

    Past, Present, and Possibility: The Progression of Pay-for-Performance

    For decades, healthcare leaders have searched for a way to balance the interests of providers, patients, and payers. The pay-for-performance paradigm has emerged as a front-runner in the race to drive down healthcare costs while simultaneously raising the quality of care and increasing patient satisfaction. But what, exactly, does this buzz term mean? Defining Pay-for-Performance As this Health Affairs article explains, the pay-for-performance umbrella encompasses any “initiatives aimed at improving the quality, efficiency, and overall value of …

  • Payment Reform is Coming: What PTs Must do to Prepare Image

    articleMay 26, 2015 | 5 min. read

    Payment Reform is Coming: What PTs Must do to Prepare

    When it comes to payment reform, the wheels of change are already in motion—and as you’ve learned in this post on payment models and this one on the proposed PT payment system overhaul, there’s no stopping this train. But forward motion is typically a sign of progress, and that certainly holds true in this case. Because by aligning themselves with the push to reform payment structures and processes to better align with the so-called triple aim—that is, …

  • 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 …

  • Taking Charge: The Proposed PT Payment Remodel Image

    articleMay 18, 2015 | 2 min. read

    Taking Charge: The Proposed PT Payment Remodel

    Value-based. Quality-driven. Pay-for-performance . These are some of the buzzwords you’ve probably heard being bandied about in the healthcare payment world. And all that buzz is only going to get louder with time, because no matter how you choose to describe it, the movement toward better care at a lower cost is picking up major steam. As we already covered in a previous blog post , that movement has manifested in the formation of several different alternative …

  • Evidence-Based Payment: Why Data is the Key to Pay-for-Performance Success Image

    articleMay 5, 2015 | 4 min. read

    Evidence-Based Payment: Why Data is the Key to Pay-for-Performance Success

    If I challenged you to find a rehab therapist who didn’t believe in the power of evidence, you’d be searching for a while—forever, hopefully. After all, PTs, OTs, and SLPs are steadfastly dedicated to evidence-based clinical practice, because they know it gives their patients the best possible chances for success. On the business side of therapy practice, however, the application of evidence—a.k.a. data—is something many rehab therapists have yet to fully embrace. Payers, on the other hand, …

  • 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 …

  • Outcomes and Incentives: Will Your Practice Make the Cut? Image

    articleMar 3, 2016 | 5 min. read

    Outcomes and Incentives: Will Your Practice Make the Cut?

    Fortunately—or unfortunately, depending on how you look at it— the days of receiving payment for your services, regardless of how well those services actually perform, are numbered . That’s because with each passing day, we’re moving closer to a completely value-based (a.k.a. pay-for-performance) healthcare paradigm—one in which payers will financially incentivize providers based on their patients’ outcomes, not just the volume of services provided to those patients. That means that implementing evidence-based, data-driven clinical best practices is …

  • Payment Reform and PT: The Private Practice’s Guide to Pay-for-Performance Image

    downloadMar 8, 2016

    Payment Reform and PT: The Private Practice’s Guide to Pay-for-Performance

    The US healthcare system is in the midst of a massive overhaul. As part of that shift, the volume-based payment systems of yore (a.k.a. fee-for-service) are quickly going the way of the floppy disk to make room for a new payment paradigm: pay-for-performance. Soon, you’ll receive reimbursements based on the quality of care—not the quantity of services—you provide. Is your rehab therapy practice equipped to survive—and thrive—in a value-based payment world? Enter your email address below to …

  • The Pay-for-Performance Puzzle: 3 Ways PTs Can Get a Piece Image

    webinarMay 1, 2015

    The Pay-for-Performance Puzzle: 3 Ways PTs Can Get a Piece

    There are a lot of moving parts when it comes to payment reform: better access, lower cost, and improved accountability. And when you put ’em all together, you have a model that rewards quality over quantity, which is a great thing for PTs—if they know how to see the big picture and prepare accordingly. In this webinar, hosts Heidi Jannenga and Charlotte Bohnett will assemble the pay-for-performance puzzle and detail three things PTs can do to get …

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