David B. Snow, Jr. is chairman and CEO of Cedar Gate Technologies.
We continue to see an accelerating shift away from the traditional fee-for-service (FFS) model in the U.S. healthcare system toward value-based care (VBC) models. This is because FFS reimbursements can create skewed incentives that often don’t serve patients, reward “sick care” in expensive settings without accountability for outcomes and strain our healthcare system finances.
With VBC, provider reimbursement is linked to positive outcomes in terms of cost and quality. VBC promotes “well care,” rewarding providers for proactively keeping patients healthy rather than for the volume of billable procedures and services.
Value-based care programs fall into three broad categories:
1. Primary Care Attribution: This includes upside incentives for organizations that achieve cost and quality targets for an attributed patient population. Some programs offer more rewards to organizations willing to take on downside risks.
2. Capitation: In this type of program, healthcare delivery organizations are responsible for managing the total cost of care and achieving quality targets for a specific patient population. They receive a fixed reimbursement per patient (adjusted for each patient’s health needs and risk factors) and are accountable for managing the person’s health within that amount. If costs fall below the reimbursement, the organization keeps the excess. If costs exceed the reimbursement, the organization must cover those.
3. Bundled Payments: This is an alternative to FFS payments where all the components for an episode of care—for example, a knee replacement—are bundled into a single claim. Prospective bundles set reimbursements in advance; everyone involved in the episode of care must manage costs and achieve quality metrics based on contract parameters. Retrospective bundles, by contrast, adjust reimbursements after the episode with no guarantee they’ll meet cost or quality targets. Upside rewards and downside risks are typically capped for providers in these contracts.
Successful VBC programs have a proven track record of improving care quality and outcomes while reducing costs. However, participation requires taking on clinical and financial risks, which is new for many venturing into value-based care. There’s also resistance to leaving the “comfort zone” of FFS and learning a completely new way of doing business. So, although the benefits of VBC are clear, making a system-wide shift to VBC is hard.
CMS’ New Mandate For Bundled Payments
Part of the reason the shift to VBC has been slow is the voluntary participation. Now, the Centers for Medicare and Medicaid Services (CMS) is shifting tactics, announcing a mandatory bundled payments program for more than 700 hospitals and their providers performing five high-cost, high-volume surgical procedures. The Transforming Episode Accountability Model (TEAM) launches in January 2026.
Are we ready for mandated bundled payment programs in U.S. healthcare? I believe the answer is yes, but it will require healthcare facilities and hospitals to let go of legacy software designed for an FFS past and consider technology that supports a VBC future.
The Case For Bundled Payments
Bundled payment models aren’t new. A cardiovascular group in Texas founded by heart surgeon Dr. Denton A. Cooley—CardioVascular Care Providers (CVCP)—launched the first bundled program 40 years ago. In its first year, average costs for a coronary bypass in the CVCP Center of Excellence were about 44% lower than the average Medicare costs for the same procedure. Those cost savings and quality improvements continue to grow today. (Disclosure: CVCP is a client of Cedar Gate Technologies.)
In 2020, Vanderbilt Health launched the MyMaternityHealth bundled program for maternity care services, charging patients little to no out-of-pocket costs. In the first year, the program saved over $400,000 in total costs, primarily from a 25% reduction in cesarean section rates and a 16% decrease in NICU spending. Those bundled payments were so successful that Vanderbilt has expanded their offerings to multiple specialties and procedures. (Disclosure: Vanderbilt Health is a client of Cedar Gate Technologies.)
Hundreds of other examples of successful bundled payment models are available in reports from CMS programs like Bundled Payments for Care Improvement Advanced (BPCI Advanced). In the Comprehensive Care for Joint Replacement (CJR) model, cumulative savings totaled $72 million in the fourth year (final year results were skewed as a result of the Covid-19 public health emergency). Other models, such as Comprehensive End-Stage Renal Disease (ESRD), reported positive outcomes on every metric—including spending, utilization and patient care quality.
These programs—and many more—prove that prospective bundled payment models can achieve our collective goals of reducing costs and improving outcomes.
Getting Started With Bundled Payments
Bundled claims require a much higher level of data analysis and coordination among care providers. Those unprepared for the new model may encounter confusing and frustrating hurdles that delay payment and impact revenue and patient care. Legacy FFS payment technology may not be equipped to take on these new challenges.
For providers and hospitals to take on bundled payments, they should begin by exploring VBC technology and hiring on-staff specialists or engaging with consultants with expertise in:
• Modeling Bundled Payments And Forecast Performance: Success in bundled payment programs isn’t guaranteed, but the ability to model contract performance using historical data helps hospitals and providers feel more comfortable entering risk-based models.
• Understanding Risks Within A Patient Population: FFS models have no risk, but with bundled payments, participants must understand variance and opportunities to improve quality while maintaining or lowering costs. Analytics software that aggregates information from multiple sources and uses AI algorithms to predict risk helps manage it.
• Pinpointing Actions To Mitigate Risk: Identifying risk is the first step, but providers also need guidance in reducing risk and improving outcomes. Alternative payment models require advanced analytics that goes beyond examining historical trends to offer actionable steps care teams can take to achieve clinical and financial goals.
• Evaluating Performance Against Industry Benchmarks: Benchmarking provides opportunities to adjust performance throughout the year and optimize bundled payments for participants.
• Identifying Outliers: Bundles require collaboration, with every member of the team performing at a high level. Data can reveal outliers—for example, providers with high readmission rates or procedure costs that are out of normal range—allowing administrators to intervene and improve.
Prepare For A Healthcare Future With Mandates
TEAM will run for five years to evaluate its efficacy. Although this is the first time healthcare stakeholders are mandated to participate in a VBC model, it’s likely not the last. As risk-based models proliferate, payers and providers can achieve better clinical and financial outcomes with strategies and investments that support a VBC future.
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