Episode-Based Payments Explained

Episode-based payments, also known as bundled payments, were created by the Center for Medicare and Medicaid (CMS). This type of payment model came about with the Affordable Care Act in hopes of improving patient care while decreasing the cost to Medicare.


What is an Episode Based Payment?

This payment model was designed as a one-time all-inclusive payment to be made to all the healthcare providers and institutions working on the same case including the physicians, hospital (if hospitalization was necessary), nurses, medications, medical equipment, post-acute care, and so on for related services. The payment method is based on the projected costs of the specific episode of care.


Episode of Care

An episode of care is defined as care provided for a specific condition. There are currently 48 types of episodes of care, the list is expected to grow under MACRA. (list of conditions) the list of conditions is near the bottom of the page and each condition comes with a short list of contributing factors and time frames. The time frame comes into play when an episode of care is provided within a certain specified period of time.


Example of Episode of Care

If a patient has surgery, the payers (Medicare, insurance company etc.) would reimburse the physician, surgeon, anesthesiologist, and the hospital separately for the role they played in the patients care.

With the bundled payment model, the payers would jointly reimburse the hospital and providers involved in the case, by using a specific price for the episode of care, which is typically based on the historical costs.

Clearly there is some financial risk involved with the bundled payment model. If the cost of the episode of care is less than the set price, the providers keep the balance. However, if the cost is more, the providers lose money. 


How the Funds are Divided Up Among the Providers

The providers can be paid one of two ways – each provider involved in the Episode of Care is reimbursed separately. The other way providers are paid is not so ideal one provider receives payment for all the providers and reimburses each provider.

As time progresses, so will the guidelines. We're optimistic this risk-based financial model will help the CMS achieve the goal of better care at lower costs.


Episode-Based payments and other risk-based healthcare service reimbursement models are here to stay. Our technology is used by health systems who are evolving to meet the demands of value-based care.

We're happy to share the best practices we've learned - complete a demo request to schedule a no obligation consultation.

Topics: Post-acute, Articles, Industry, acute
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