As the U.S. healthcare system continues its shift away from fee-for-service (FFS) toward value-based care (VBC), the prevalence of advanced alternative payment models is increasing. Bundled payments are attracting significant attention as healthcare delivery organizations (HDOs) and stakeholders understand how bundles improve care quality and reduce the total cost of care.
What is a Bundled Payment?
A bundled payment is an alternative payment model to traditional fee-for-service. It includes a fixed price for a pre-defined episode of care, commonly consisting of a procedure for all related services or all care for a medical condition, such as a total knee replacement or arrythmia.
There are two types of bundled payments:
Prospective bundles pay providers a single, fixed price for all the services included in an episode of care. Payers and providers agree to the price in advance. Providers must manage costs and achieve quality metrics based on contract parameters, and are fully responsible for the downside risk if they do not achieve the parameters. Likewise, if they do meet or exceed cost and quality metrics, they retain some or all of the remainder as earnings to be used either as a bonus or to keep in reserve for adverse future risk.
Retrospective bundles, by contrast, continue to pay traditional fee-for-service rates to providers throughout the episode. Once the episode is complete, the payer reconciles the total costs to a predetermined target for final settlement. If the actual costs were less than target, then providers may receive upside shared savings, usually capped around a risk corridor. If the actual costs exceed the predetermined reimbursement amount, providers receive no bonus. In bundled payment contracts with both upside and downside risk, providers that do not meet the target may be required to return excess costs to the payer (again, with the downside typically capped around risk corridors).
TEAM Will Introduce the First Mandatory Bundled Payments in 2026
The Centers for Medicare and Medicaid Services (CMS) announced a new bundled payment model called Transforming Episode Accountability Model (TEAM). The program is the first to mandate participation in a VBC alternative payment model but probably won’t be the last. Beginning January 2026, more than 700 hospitals nationwide will be required to coordinate episodes of care with specific payment targets for Medicare patients undergoing five designated surgical procedures.
While TEAM hospitals and their performing physicians are required to participate in this model, many other organizations are already voluntarily engaging in bundled payments. For those interested in building a bundled payment program, it is important to understand how to get started and achieve success. Learning from case studies of successful bundled payment programs is highly recommended. Here are two such case studies.
The Longest-Running U.S. Bundled Payment Program
In 1984, renowned cardiovascular surgeon Dr. Denton A. Cooley founded CardioVascular Care Providers (CVCP), a financially and clinically integrated group of physicians who offered cardiovascular care under bundled payment arrangements. One year after the founding, the results were dramatic – with 44% lower costs on coronary bypass surgeries performed by CVCP surgeons when compared to average Medicare costs for the same procedure. CVCP has grown exponentially and today includes more than 3,300 participating physicians who have provided more than 2.1 million bundled cardiac procedures and services in the last 20 years. The group has collectively saved millions of dollars while maintaining the highest care quality for cardiac patients who use their services in Texas.
Bundled Payments Are for Everyone
CVCP isn’t the only bundled payment success story. Large hospitals systems committed to value-based care are also finding success with these models.
Vanderbilt Health in Nashville, Tennessee launched a bundled payment program in partnership with Metro Nashville Public Schools (MNPS) after the school district saw an increase in costly neonatal claims for employees. Together, they designed maternity bundles and encouraged MNPS employees to get their care at Vanderbilt. The results were remarkable and immediate. In the first year:
C-section rates declined by 12%
NICU spending was down 16%
The program saved MNPS $500,000 on maternity claims (in 2024 the savings reached $1 million)
Patients gave the program a Net Promoter Score in the 90th percentile
The maternity bundles were so successful that Vanderbilt Health has since expanded to create bundled payments for joint replacements, bariatric surgery, and minimally invasive spine surgery.
Components of Success in Bundled Payments
Success in bundled payment models doesn’t come automatically – it requires the right people and the right technology to create a sustainable, beneficial, and financially viable program.
Build a Dedicated Bundles Team
Effective programs start with program champions who understand how bundled payment programs work, and why they are so important in a value-based healthcare future. Physician champions are particularly important, as they can help build a patient-centric model and mentor other physicians and care providers new to bundled payments. Administrative leaders also need in-depth knowledge of how to manage risk in bundled payments for optimal clinical and financial outcomes.
Invest in Bundled Payment Technology
Effective bundled payment technology should enable:
Performance and contract modeling to visualize the potential clinical and financial impact of bundles.
Risk mitigation through advanced analytics tools that uncover risks and provide steps to mitigate those risks.
Actionable care team insights that translate analytics data into workflows to optimize performance and improve outcomes.
In-year benchmarking and performance evaluation, allowing providers to clearly understand how they will be measured, and how they perform throughout the year, with the ability to course-correct to achieve expected results.
Outlier identification so administrators can see who is not meeting the standards for care quality and costs and proactively intervene.
Seamless payment processing and downstream distribution with payment technology designed for advanced prospective VBC alternative payment models.
Preparing for a VBC Future
Bundled payment programs are an effective way to control costs while improving care quality and patient outcomes. As the evidence of bundles efficacy grows, they are likely to play more of a role in a value-based care future. Organizations and healthcare stakeholders should be preparing today to succeed in these programs.
