Blog Post

Bundled Payments: The Outlook for 2020

Market  Trends For  Bundled  Payments  Outlook For 2020 Web

The bundled payment market expanded significantly in 2019 and will continue to do so in 2020. Growth was primarily driven by industry pressure to deliver value-based care through alternative payment models (APMs). The most recent numbers show that over 35% of US healthcare reimbursements flowed through APMs—a 52% increase from three years earlier. This evolution paved the way for bundled payments, a relatively low barrier-to-entry APM model. For payers and providers lacking experience in such value-based payment models, “episodes of care” are less complex compared to their ACO and full-capitation counterparts, which has contributed significantly to bundled payments’ rise in popularity.

Growth was also driven by the launch of Bundled Payments for Care Improvement (BPCI) Advanced, a voluntary CMS program that allowed hospitals and physician groups to select specific episodes of care for participation. Notably, the program offered participation in 35 clinical episodes that spanned 8 service lines and included medical issues, chronic conditions, and surgical procedures. To date, the program counts 1,010 hospitals and 1,031 physician groups as participants. The second cohort of BPCI Advanced began on January 1, 2020.

Based on CMS activities and our observations throughout 2019, we anticipate four key bundled payment trends to look for in 2020.

1. Mandatory participation in bundled payment programs is likely.

In 2019, CMS announced a policy shift regarding mandatory bundled payment programs. Historically a staunch advocate of voluntary payment models, HHS Secretary Alex Azar said the administration would “revisit” mandatory programs that had previously been abandoned. His announcement was followed by the release of a Government Accountability Office (GAO) report that outlined the advantages of mandatory bundled payment programs. Specifically, the GAO concluded that mandatory models are more likely to encourage the transition from traditional Medicare fee-for-service to value-based care models among providers that may be reluctant to make the change on their own. Further, mandatory models allow CMS to collect more reliable performance data and test models that have greater financial risk.

Following these events, CMS proposed a new bundled payment program for cancer patients known as the Radiation Oncology (RO) Model. The program will be mandatory for all providers in designated regions and will include significant downside risk. Although CMS’s original intention was to begin the program in the first half of 2020, it is likely to be delayed due to stakeholder pushback. In conjunction with this announcement, CMS proposed two voluntary bundled payment programs related to kidney care, which have been delayed until 2021.

CMS’s position on mandatory bundled payments is clear, and we expect similar programs to be announced later in 2020. Provider organizations preparing for mandatory programs should focus initial efforts on data analytics, physician engagement and alignment, and post-acute care coordination.

2. Site-neutral payments will become increasingly common.

Site-neutral payments have been a contentious topic over the past year. Although a federal court ruled against the policy, CMS and the Trump administration elected to move forward with the decision to pay doctors the same amount for basic visits, regardless of whether the visit occurs in a hospital outpatient facility or a regular physician office. CMS estimates that the policy will cut federal spending by $800 million in 2020.

Site-neutral payments are now being incorporated into bundled payment models. CMS explicitly identified site-of-service payment differentials between freestanding centers and hospital outpatient departments (HOPDs) as one of the major drivers for implementing the RO Model. Payment calculations in the model will now be based on the lower of the two settings regardless of where the radiotherapy treatment is performed. Further, under the BPCI Advanced program, CMS implemented site-neutral payments for major joint replacements of the lower extremities. Finally, commercial payers have also started implementing site-neutral payments; in 2019, Blue Cross Blue Shield of North Carolina initiated site-neutral bundled payments for hip, knee, and shoulder replacements.

For 2020, we expect government payers, commercial insurers, and employers to continue to adopt site-neutral payments in bundled payment models. This structure aligns provider, payer, and patient interests by removing incentives to provide more complex treatments or select more expensive sites of care.

3. Compared to provider organizations, payers and employers are driving the shift toward bundled payments.

Over the past year, large commercial payers have taken significant initiative to develop and launch bundled payment programs. Many of these commercial insurers—like UnitedHealthcare and Horizon Blue Cross and Blue Shield of New Jersey—are increasingly focused on direct partnerships with physician groups as episode initiators. Physicians play a critical role in patient management and care coordination under an episode-of-care model. Contracting directly with physician groups allows payers to appropriately incentivize them for improved outcomes and reduced cost.

To further support bundled payment initiatives, technology and analytics companies have begun launching products to help insurers define and price episodes of care across various service lines. Specifically, software tools will assist payers with the technical aspect of claims adjudication in a bundled program. The emergence and growth of analytics-based organizations will further expand the commercial market in 2020.

While the market continues to grow, providers who are ahead of the value-based curve will be the most successful. Provider organizations that recognize the value of bundled payments will likely be able to work in partnership with payers and structure mutually beneficial arrangements that align with their strategic priorities and initiatives.

4. Substance use and behavioral health bundles will emerge.

Bundled payments for behavioral health services are a relatively new concept, and design of best-in-class models remains a work in progress. However, for 2020, we note two key emerging trends:

  1. Development of bundled payments for substance use
  2. Bundled payments as a vehicle for primary care and behavioral health integration

Both of these developments significantly increase patient access to behavioral health services and ensure better patient outcomes.


The majority of patients seeking treatment for substance use will do so in a residential facility (as opposed to hospitals or outpatient facilities). Traditionally, services provided at residential facilities have not been fully reimbursed by commercial or government payers, and patients must pay for room and board out of pocket (medical treatment is usually reimbursed). Further, postdischarge care is usually siloed, uncoordinated, and poorly managed, which greatly increases the likelihood of a patient’s relapse or hospital admission. In fact, nearly 50% of patients relapse in their first year after discharge.

Bundled payments offer a solution: when treated within the context of a defined program with comprehensive postdischarge services, patients with substance use disorders are more likely to achieve lasting sobriety. Payers and providers interested in developing substance use disorder bundles should ensure follow-up care addresses not only the patient’s health but also their family relations and employment, in order to support continued sobriety. Providers that are first to market with commercial payers or employers are bundling care for up to a year postdischarge (from a residential treatment facility). For more severe cases, arrangements may include discounted rates for patients who require an additional stay in the residential treatment center during the one-year postdischarge period. As reimbursement for these services increases, providers can achieve financial sustainability and increase access to behavioral health services.


In addition to substance use disorder bundled payments, payers and providers are developing episodes of care for patients with serious and persistent mental illness (SPMI) such as major depression, bipolar disorders, and schizophrenia. More complex than substance use disorders, SPMI requires a team of qualified multidisciplinary providers to work in a highly coordinated manner. Specifically, these bundles integrate primary care, pharmacy, and other medical services, in addition to behavioral health. Over the past year, we have seen payers move away from traditional carve-outs for behavioral healthcare as they have begun to recognize the value of integrating services in treating complex mental illnesses. Through team-based decision-making, integration ensures better patient outcomes and reduces the likelihood of an emergency department visit or hospital admission. Inclusion of pharmacy services is especially important, as medication plays a significant role in the routine care of SPMI patients.

Bundled payments offer a vehicle for payers to integrate services, increase care coordination, and manage costs for SPMI patients; however, due to the complex nature of these bundles, payer-provider contracts may vary greatly from one arrangement to another. For example, large employers often contract directly with the primary care provider and allow that physician to “quarterback” all care required over the course of the episode. In contrast, commercial insurers may prefer to contract with each participating provider separately. Regardless of the final arrangement, payers and providers must specify the services to be performed by each provider. A primary care provider may offer certain services at a lower cost than a psychiatrist or other behavioral health specialist. The model must also be designed to ensure that services are not duplicated by each participating provider.


The two types of behavioral health bundles described here have one thing in common: they aim to provide definition and structure to services that are currently ambiguous and managed ineffectively. The primary goal of behavioral health episodes of care is not to reduce spend but rather to improve patient access and outcomes. As these programs become more common, we will see more commercial payers and employers embrace bundled payments for behavioral health.

Bundled Payments Will Continue to Grow

Throughout 2020, the bundled payment market will continue to expand. Growth will be dictated by new CMS programs, innovative payment structures, and emerging service lines. Quality and value driven organizations, who are also willing to take measured risk, are most likely to succeed under bundled payments and will find themselves advancing further along the value-based care-delivery continuum.