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ISSUE BRIEFMedicare’s Bundled Payment Initiatives: Considerations for ProvidersIntroductionRecently, the Centers for Medicare and Medicaid Services (CMS) has taken significant steps to expand the use of bundled payment programs.In October 2015, it announced that more than 1,600 participants had entered its Bundled Payment for Care Improvement (BPCI) program, including 415 acute care hospitals, 305 physician groups and 723 skilled-nursing facilities (SNFs). In November, CMS released its final rule for a new Comprehensive Care for Joint Replacement (CJR) initiative, a mandatory bundled payment program for total hip/knee replacement in 67 metropolitan statistical areas (MSAs) with 789 hospital participants beginning April 1, 2016. Bundled payment sets a single spending target for all applicable health care services provided during a clinical episode of care over a specified time period. For example, a 90-day episode of care for total joint replacement could include the hospital stay, physician services, outpatient care, home health, post-acute facility services and readmissions. The goal is to create financial incentives that encourage providers to coordinate care across treatment settings, reduce unnecessary services and expand initiatives that can help patients recover quickly.The Department of Health and Human Services (HHS)is attracted to bundled payment because it can be implemented across a wider range of providers compared with initiatives like the Medicare Shared Savings Program (MSSP) in which organizations need a large base of primary care physicians to participate. Furthermore, the new bundled payment programs are designed to generate guaranteed cost savings. Given HHS’s goal of shifting half of Medicare payments into alternative payment models by 2018, it is likely that CMS will continue to introduce new bundling initiatives.This issue brief describes the evolution of bundling within the Medicare program; the opportunities bundling creates for hospitals and post-acute care providers; the challenges providers have encountered in recent initiatives; the issues providers should consider when entering a bundled payment program; and policy considerations associated with a broader expansion of bundling initiatives in Medicare.History of Medicare bundled paymentThe movement toward Medicare bundled payment began with the creation of the inpatient prospective payment system in 1983.In a single year, Medicare shifted from paying hospitals on the basis of reported costs to paying a fixed amount per inpatient stay based on a patient’s diagnosis.iAt the time, some policy officials proposed including physician services in the diagnosis-related group (DRG) payment model, but this idea was ultimately dropped.iiAlthough the DRG system represented a radical change for hospitals, it did not affect the way other providers were reimbursed.