February 1, 2018

Should Providers Bite on Downside-Risk Bundles?

by Lisa Bielamowicz


Providers must develop the capability to build and deliver efficient care episodes for consumers, even if complexity prevents bundled payments (in their current form) from being a long-term solution to reducing healthcare costs.


  • CMS announced Bundled Payments for Care Improvement Advanced (BPCI Advanced) in January 2018, less than two months after cancelling two mandatory bundled payment programs created under the Obama administration
  • Participating providers can receive performance payments for 32 eligible clinical episodes, including for the first time, three outpatient clinical episodes.
  • Simplified from the original BPCI program, BPCI Advanced offers a single 30-day, retrospective payment model with either acute care hospitals or physician groups serving as risk-bearing conveners
  • Providers will bear downside risk for performance, owing money back to CMS should spend exceed the target price; however, with this downside risk BPCI Advanced meets the requirements as an alternative payment model (APM) for MACRA participation


1. BPCI Advanced will test providers’ appetite for downside risk.

Participants will bear downside risk from the get-go in BPCI Advanced, owing CMS money back should spending exceed the target price. When given the choice, providers have largely shied away from bundles with downside risk. Witness the first generation of BPCI, where 75 percent of participants dropped out of the program once downside risk kicked in.

What could be different this time? With a few years of ACO experience under the belt, some providers are more comfortable with risk. Health systems who had geared up for the recently-cancelled mandatory bundles, not to mention current BPCI participants, feel confident that they have the relationships and infrastructure needed to be successful. But the big new incentive is MACRA. BPCI Advanced meets the risk and IT requirements to qualify as an APM, bringing a five percent bonus on all Medicare payment, and absolving doctors from the complex requirements of quality reporting under MIPS. 

Some specialists may see BPCI Advanced as a path to APMs on their own, and ACOs may welcome an alternative for specialists beyond making them full-fledged ACO members. However, physicians should temper their expectations. The thresholds for APMs rise quickly in the next few years. In 2021 providers will need 50 percent of all Medicare revenue to be in an APM to qualify for the bonus. It won’t be easy for single-specialty practices to hit this in BPCI Advanced alone.

In the rest of the consumer economy, even the simplest services are purchased as a bundle…consumers who pay out-of-pocket for their care will expect the same from hospitals and doctors

2. Despite guaranteed savings for payers, complexity may ultimately limit scaling bundles beyond pilots.

With a three percent discount off of the benchmark price, bundled payments are essentially a price cut for participating providers. CMS will pocket that savings regardless of whether participating providers are actually able to reduce the cost of care. This automatic savings makes bundled payments very attractive to payers.

Despite the lure of guaranteed savings, the complexity of administering bundles like those in BPCI Advanced may outweigh the upside for CMS. Retrospective bundled payments are better characterized as “shared savings across an episode.” Determining the benchmark, monitoring cost and performance across a group of providers, distributing savings—not to mention the diminishing returns of shared savings over time—makes this type of bundle less attractive in the long term.

3. New outpatient bundles create a different set of strategic considerations—and opportunities for savings.

BPCI Advanced marks the first time CMS has piloted bundled payments for episodes in the outpatient setting (three cardiac and orthopedic indications are eligible). Opportunities for cost savings in inpatient and outpatient bundles may end up being very different, which is especially important for hospitals. 

Cost savings from inpatient bundles largely came from managing post-acute utilization. This is an attractive proposition for hospitals, who can network post-acute providers and find savings that come from someone else’s bottom line. 

Outpatient procedures have lower utilization of post-acute services, so providers will have to look elsewhere for savings. This could bring some uncomfortable questions. Consider site of service. Doctors could have a motivation to move work away from sites billing under HOPPS to capture the cost savings. This could be another driver—and set of data that supports—the move to site-neutral payments.

4. Providers must develop the ability to deliver an efficient care episode irrespective of the success of payment pilots.

Thinking beyond the CMS program, the ability to deliver an efficient care episode at a single price will be critical in a healthcare marketplace where consumers are choosing and paying for care. In the rest of the consumer economy, even the simplest services are purchased as a bundle. The latte you ordered this morning is a bundled product, as you didn’t pay separately for the beans, the cup, the milk, and the professional services of the barista. Consumers who pay out-of-pocket for their care will expect the same from hospitals and doctors.

Programs like BPCI Advanced provide a platform to organize providers, particularly specialists, into a network that can deliver an episode product—and share in any cost savings. Lessons from early adopters show that there are real savings to be found, particularly in post-acute services, and that these gains may be sustainable over several years. For some systems participation in BPCI has been a springboard to broader alignment around service line performance.