Skip To Navigation Skip To Content Skip To Footer
    Hire Physicians Who Fit, Succeed and Stay - Recruit a Physician - Jackson Physician Search and MGMA
    Insight Article
    Home > Articles > Article
    Janis Coffin
    Janis Coffin, DO, FAAFP, PCMH CCE, FACMPE
    Sara Esfahani
    Sara Esfahani
    Current healthcare trends show movement toward quality-based payments and away from quantity-based payments. These trends reflect efforts to cut healthcare spending by eliminating excess costs and using evidence-based medicine to guide clinical decisions.

    Bundled payment programs are a distinct form of value-based payment, with unique barriers to implementation in outpatient surgical centers, and considerations for surgeons, surgical centers, and insurers.

    The Affordable Care Act prompted the implementation of value-based purchasing (VBP) programs for payments under the Medicare program for ambulatory surgical centers (ASCs).1 VBP programs encourage healthcare cost containment and quality improvement. If healthcare value is defined as patient outcomes achieved per dollar expended, we increase the value of care delivered to patients by improving outcomes at similar costs or reducing the total costs involved in patients’ care while maintaining the quality of outcomes.2

    In bundled payments, also known as episode-based payments (EBP), an accountable care entity receives a lump sum for relevant medical services within a specified period or clinical care cycle.3 In contrast to other population-based alternative payment models (APMs), such as accountable care organizations (ACOs), EBP models are particularly suitable for specialty care providers and surgeons.4

    The Center for Medicare & Medicaid Innovation (CMMI) developed the bundled payment care initiative (BPCI) to facilitate coordinated, integrated, and efficient care in episode-based, specialty care settings.5 According to CMS, the total cost of healthcare in the United States reached $4.1 trillion in 2020, or 19.7% of gross domestic product (GDP).6 The ASC market recently was valued between $30 and $40 billion.7 Historically, Medicare has made two payments for each procedure performed in an ASC — to the surgical center and to the provider.8

    Efforts to reduce costs and improve quality for services provided to Medicare beneficiaries have led to a higher volume of services at ASCs.9 Increased interest across the healthcare industry in value-based care and the provision of care in lower-cost settings has increased the strategic investment interest of hospital systems, insurers, and private equity firms in ASCs.10

    CMS has identified opportunities for savings in ASC settings. There is a large variety of devices, drugs, and supplies used for services, and their prices vary significantly. EBP encourages providers to use the most cost-efficient resource that meets the patient’s need, rather than routinely using the more expensive resource, which may occur if separate payment is provided for the item.11

    Participation in bundled payment programs through CMS and non-CMS is voluntary. However, for the reasons explained below, participation in bundles may increase ASCs’ competitiveness. From the payers’ perspective, the costs per surgery might be half as much as they typically pay. From the ASC’s viewpoint, there is an uptick in business, along with more straightforward and faster repayments. From the patient perspective, the increased value of care is very attractive.

    Bundle development

    The process of developing a bundle is multi-faceted, and the following steps should be taken:
    1. Determine the procedure to bundle and the services that will be included. The GSCRC provides criteria that must be met for a bundle to center around a procedure:12
    • Adequate and relevant data for analyses
    • Elective, nonemergent procedures
    • High volume, high expenditure
    • Procedures are performed across the country and not isolated to certain areas or institutions
    • Existence of evidence-based or appropriateness criteria
    • Established measurable processes of care or performance measures
    • The ability of the surgical patient or outcomes to be risk-adjusted
    • Measurable variation in resource use
    • Opportunity for cost savings
    • Reasonable predictability of costs
    • Low vulnerability to CPT/ICD/DRG upcoding or miscoding
    • Include the involvement of multiple providers in the delivery of care.
    The most common outpatient procedures in the general population — from most common to least common — between 2014 and 2019 are:13
    • Cataract with intraocular lens insert one stage
    • Upper GI endoscopy, biopsy
    • Colonoscopy and biopsy
    • Lesion removal colonoscopy (snare technique)
    • Inject paravertebral: lumbar, sacral
    • Injection spine: lumbar, sacral (caudal)
    • Colorectal screen, high-risk individual
    • Destroy lumbar/sacral facet joint
    1. Determine the duration of the care period. Bundles commonly define the episode of care as three days pre-operation to 30 days post-operation.14
    2. Determine quality measures to monitor the performance of the bundle. The metrics should capture quality of care, patient experience, patient safety and resource use. The American College of Surgeons recommends using outcomes, rather than processes, and clinical, rather than administrative, measures that have received National Quality Forum or other multi-stakeholder third-party endorsement.15
    3. Determine which providers are responsible for each aspect of patient care in the bundle, and the cost of provider services.
    4. Determine who will administer the bundle: a hospital, independent practice association (IPA) or third-party administrator. The administrator must be able to receive, store and transmit information on case pricing, payments, types of providers, contracts, bundling rules and length-of-stay data. This entity will do all cost calculations.16
    5. Develop risk-adjustment processes. While bundles are developed with the average patient in mind, accurate risk-adjustment must be nonetheless performed on a case-by-case basis. Risk-adjustment is a statistical process that ensures providers are adequately compensated for more complicated patients.
    6. Determine the gainsharing agreement. When a bundle is administered for less money than anticipated and without compromise in quality of care, providers share the savings. This is described as gainsharing. Bundle participants should determine how savings will be distributed when creating a bundle. Additionally, programs that use two-sided risk (i.e., shared savings and losses) appear to have the greatest impact, so the gainsharing agreement should also specify how any spending over the anticipated rate (i.e., losses) will be covered.17
    7. Determine if adequate data is available. It is crucial for bundle participants to have access to relevant and adequate data to determine the risk of entering into a bundled payment agreement. Participants must also have the financial and technological support needed to accurately analyze these data.
    It is essential to look at existing bundles — including public bundles administered by CMS and private bundles administered by commercial insurers — to glean the most insight.

    The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 authorized the Acute Care Episode (ACE) Demonstration. Results from the ACE demonstration indicate savings up to $4 million, and at the same time, key quality measurements remained stable and some improved.18

    The national pilot initiated in 2013 showed how BPCI resulted in reductions to episode payments, although Medicare continued to experience net financial losses. Decreasing institutional post-acute care (PAC) use drove reductions in episode payments.19 Medicare’s pilot studies show no evidence for Medicare’s BPCI associated with compromised quality; moreover, BPCI has not been associated with increased readmissions, emergency department use, or mortality.20

    Geisinger Health Plan instituted its ProvenCare bundled payment program in 2006, and its program for CABG procedures has resulted in increased compliance with best practices; improved trends in 30-day clinical outcomes; improved quality; and decreased length of stay, readmission rate, mean hospital charges and complications.21


    There is skepticism around the transition to value-based reimbursement, as health systems sometimes lack systematic mechanisms for assessing the potential impact of EBP on institutional and provider finances.22 Current strategies to estimate health system reimbursement under an alternative model relative to fee-for-service (FFS), where “cost” is conceptualized as payer reimbursement to the health system rather than true service-delivery costs; these strategies fail to capture the complete picture of the actual financial implications of transitioning to value-based payments.23 Because healthcare organizations must understand the impact of adopting alternative payments in the context of actual costs to deliver care, the uncertain financial implications have stymied stakeholder enthusiasm around EBP models.24

    Building and implementing a bundle is complicated, and it is crucial to the bundle’s success to have specific components. These include communication between providers, strong physician leadership, analytics and reporting, predictive modeling, care management and network management.25

    While surgeons are encouraged to transition to an EBP model, uncertainty regarding the transition presents a challenge to providers. Despite growing data and examples to follow, an overall lack of guidance has prevented the widespread adoption of this payment model. Certain issues must be considered when creating and implementing an EBP model.

    Bundled payment contracting involves trade-offs: Expanding a bundle’s scope and duration may better contain costs, but a more comprehensive bundle may be less attractive to providers, reducing their willingness to accept it as an alternative to fee-for-service payment.26 Bundled payments can help slow the growth of payer spending, although they do not necessarily reduce absolute spending; however, designing a bundled payment contract that is attractive to providers and payers proves to be a challenge.27


    Growing concerns about healthcare affordability and quality have prompted widespread efforts to extend APMs, including EBPs, that reward high-quality, low-cost care.28 ASCs must be aware of this payment model and consider the implications of their participation or lack thereof. EBPs have gained traction as payers enjoy the contained costs without compromised quality of care.

    Firms that participate in EBPs may experience higher business volumes because of this. However, limitations to participation are largely attributable to the unknown financial risk and the challenge of bundle development. ASCs should consider the following when creating, evaluating or administering a bundle:
    • Clearly define bundle procedure, services included, time frame of care, quality measures, attribution, administration, risk adjustment, gainsharing and data.
    • Opting into a bundle model and out of an FFS model is associated with greater financial risk for providers.
    • Acquiring and analyzing the resources necessary to create a clinically coherent bundle is inherently difficult work.29
    • Investments and resources required will be challenging for many organizations, so policymakers must ensure that organizations with the expertise and interest have grant support and access to data and information needed to perform the requisite analyses.30
    • Bundled payment programs also present challenges in the development, attribution, accountability and governance of the bundles.31
    • Risk mitigation measures are necessary and most effectively applied retrospectively.32
    • Successful plans are those that have closely aligned providers and payers who share data seamlessly.33


    1. CMS. “Ambulatory Surgical Center (ASC) Payment.” Available from:
    2. Kaplan R, Porter M. “The Big Idea: How to Solve the Cost Crisis in Health Care.” Harvard Business Review. Sept. 1, 2011. Available from:
    3. Freeman R, Coyne J, Kingsdale J. “Successes and Failures With Bundled Payments in the Commercial Market.” AJMC. Oct. 2, 2020. Available from:
    4. Ibid.
    5. American College of Surgeons. Surgeons and Bundled Payment Models: A Primer for Understanding Alternative Physician Payment Approaches. April 2013. Available from:
    6. CMS. “National Health Expenditure Data.” Available from:
    7. Health Industry Distributors Association. 2021 Ambulatory Surgery Center Market Report. Available from:
    8. MedPAC. Report to the Congress: Medicare Payment Policy. March 2021. Available from:
    9. Ibid.
    10. Barclays. Health care services: Initiating coverage of hospital sector. Aug. 14, 2018.
    11. CMS.
    12. American College of Surgeons.
    13. MedPAC.
    14. Ibid.
    15. Ibid.
    16. Ibid.
    17. Werner R, Emanuel E, Pham H, Navathe A. The Future of Value-Based Payment: A Road Map to 2030. Penn LDI. Feb. 17, 2021. Available from:
    18. American College of Surgeons.
    19. The Lewin Group, Inc. CMS Bundled Payments for Care Improvement Initiative Models 24: Year 7 Evaluation & Monitoring Annual Report. CMS. March 2021. Available from:
    20. Yee, CA, Pizer SD, Frakt A. “Medicare’s Bundled Payment Initiatives for Hospital-Initiated Episodes: Evidence and Evolution.” The Milbank Quarterly, 98: 908-974. Available from:
    21. American College of Surgeons.
    22. Freeman, et al.
    23. Ibid.
    24. Ibid.
    25. LaPointe J. (2016, July 14). “Understanding the Basics of Bundled Payments in Healthcare.” RevCycleIntelligence. July 14, 2016. Available from:
    26. Yee, et al.
    27. Ibid.
    28. Freeman, et al.
    29. American College of Surgeons.
    30. Ibid.
    31. Ibid.
    32. Freeman, et al.
    33. Ibid.
    Sara Esfahani

    Written By

    Sara Esfahani

    Explore Related Content

    More Insight Articles

    Ask MGMA
    An error has occurred. The page may no longer respond until reloaded. Reload 🗙