Go big or go home

Go big or go home: Accelerating the rollout of bundled healthcare

Executive summary

Bundled healthcare holds the promise to transform the healthcare system, improving patient outcomes and reducing costs. The Centers for Medicare & Medicaid Services, payors, consumers, and employers are all ready to adopt the model, but these buyers want to see significant benefits. Meanwhile, the majority of providers have stalled at the pilot stage, unable to realize the full potential of the bundle model or secure even willing buyers given the limited nature of their efforts.

We believe that if hospitals and health systems are to unlock the full advantages of the bundled-care model, they will need to make a significant commitment to scale, meaning they should aim for bundles to represent at least 20 to 30 percent of their total services. Three complementary initiatives will bolster success in scaling up: paying closer attention to stakeholder needs, aligning targeted needs with institutional capabilities, and adopting a rapid prototyping mind-set.

Although the challenge is large, many benefits of the bundle model will start to accrue in the very short term — especially those stemming from care redesign. Hospitals cannot afford to move ahead slowly but instead must take the plunge to prepare for a new bundles-based model of care.

Moving past the pilot stage

Amid the sea of healthcare changes now under way, bundled care provides perhaps the clearest bet for what high-functioning healthcare of the future will resemble. A bundle — defined as both the single set price and the integrated end-to-end care for a complete medical condition or episode — changes the unit of purchase and organization for healthcare from individual services and interventions to complete episodes or conditions. In so doing, it shifts incentives to encourage value, delivering higher-quality care at lower cost.

Medicare will begin mandating bundles for joint-replacement procedures in the spring of 2016.

Strong currents in the industry suggest that within the next five to seven years, all providers will need to either deliver or interact with bundles, and for many, bundles will serve as the primary operating and business model. The Centers for Medicare & Medicaid Services (CMS), the 800-pound gorilla for payment reform, is supporting bundles at full force. After a series of expanding bundles experiments spanning the past 20 years, Medicare will begin mandating bundles for joint-replacement procedures in the spring of 2016, and other conditions are not far behind.

With the average hospital attributing more than 30 percent of its revenues to Medicare patients, few if any health systems can afford to ignore this shift. And if pressure from CMS is not enough, our research points to strong appeal of the bundle concept for consumers and strong pressure from employers to deliver better value, both of which provide further impetus to move beyond the fee-for-service paradigm.

Despite this inevitable and impending shift, healthcare providers remain timid in their exploration of bundles. To date, the majority of providers either are not participating or have confined their activity to small pilots designed to test the bundle concept. This careful approach is understandable given a tradition steeped in clinical trials, but it cannot drive the necessary transformation. To reap the full benefits of bundles and avoid being left behind, health systems must move past the pilot stage and think bigger.

They need to design and implement a bundles-based strategy that offers enough scale to significantly impact their overall operations and create a new value proposition for buyers. Providers that sit on the sidelines or tentatively experiment are leaving significant value on the table — for themselves, the industry, and the patient.

Promising results, timid experimentation

Some providers are moving ahead with bundles, and they are generating results. According to our most recent annual bundles survey of hospitals and employers, more than 30 percent of hospitals are participating in bundles in some way, and 50 percent more are interested. Some 60 to 70 percent of hospitals experimenting with bundles report improved quality and cost performance, and 50 percent of participating employers report similar benefits. Geisinger Health System, the large Pennsylvania-based integrated delivery network commonly known as the father of bundles, increased its margins by 17 percent with its first bundle and grew its market share by 13 percent during the seven-year ramp-up of its bundles program. Of the five major payors pursuing bundles in earnest, all reported reduced costs and improved outcomes — with UnitedHealthcare saving a remarkable 34 percent on its initial cancer care bundle.1

Despite the wins, however, most providers remain on the sidelines or experiment only selectively. Some dabble and back out. CMS’s Bundled Payments for Care Improvement initiative suffered significant attrition, and California’s Integrated Healthcare Association, which ran a high-profile bundle demonstration, ended operations despite promising results on costs and quality.2 The majority of providers that continue to play remain cautious and narrow in their efforts, and major joint replacements continue to dominate existing bundles offerings.3

The causes of stagnation

What is causing this stagnation? Why have we not moved beyond hips and knees? Of course, designing and implementing bundles is no simple task. But we believe the true impediment to progress lies with the scale and framing of efforts.

The small scale and relative low priority of current bundle initiatives means healthcare systems aren’t investing in the administrative, data, analytic, and back-office capabilities required to maximize gains. As a result, these bundle efforts require manual data processing, bespoke processes, and other work-arounds, all of which drive up costs and erode potential benefits. In addition, the lack of bundle data infrastructure impedes teams’ abilities to identify efficiencies, understand health outcome drivers, and provide a smooth and integrated care experience.

The current pilot mind-set also blocks a critical potential advantage of bundles: increased market share. The improved care and outcomes, along with lower, more predictable costs achieved through bundles, should ideally attract consumers, both directly and through payors and employers eager to steer their beneficiaries toward more effective services. However, employers and health plans want to see a considerable impact on cost to ensure that the modifications to operations and systems necessary to direct employees and members to specific care bundles are worth it. Our research suggests they are looking for gains of at least 6 to 10 percent in overall healthcare spending before taking action. Pilots focusing on only one or two conditions cannot hope to achieve this impact.

Scale as solution

To begin to tap the full benefit of bundles, health systems must reach a tipping point in the portion of services (and spend) that they offer as bundles. We believe this tipping point is 20 to 30 percent of total services — a far cry from the roughly 100 cases flowing through most bundle pilots. It takes this level of bundle-related activity for health systems to accurately value and invest in the infrastructure necessary to bring bundles to their full potential. At this level of activity, they can also start to change structures and processes and deliver the consistent messaging that can drive cultural change.

Health systems need to identify the medical conditions driving the most cost and disruption for employers, health plans, and patients.

Getting to this tipping point is a large undertaking that will require both a clear plan and strong commitment. We believe providers should focus on three complementary initiatives to guide the effort: paying closer attention to stakeholder needs, aligning targeted needs with institutional capabilities, and adopting a rapid prototyping mind-set.

Pay close attention to stakeholder needs

To bolster demand, health systems need to directly address their buyers’ key business problem: the ever-increasing cost of healthcare. To date, employers have been most attracted to cost shifting in the form of increased co-pays and higher deductibles because they see a direct impact on their overall premium levels. Despite their broader benefits, bundles will need to show a similar grand-scale impact in order to spur adoption.

The commitment to a greater volume and variety of bundles (as much as 20 to 30 percent of services) is a step in the right direction for increasing the overall cost impact, but health systems also need to identify and target the greatest needs of market payors and employers. This means not just bundling conditions that are the simplest to systematize but also identifying and targeting the medical conditions driving the most cost and disruption for employers, health plans, and patients. Our research found that employers generally wanted to see both more and a wider range of bundles than hospitals are offering or preparing to offer.

Many of these cost-driving medical conditions are underserved by existing bundles. Pregnancy and its complications, for example, account for almost one-fifth of commercial-plan spend on inpatient care, yet only a handful of pregnancy bundles exist, primarily in small pilots.4 By comparison, joint replacements, the most widespread bundle, make up just 5 percent of inpatient spend. Mental illness, diabetes, asthma, cancers, and back pain all tell a similar story: a high percentage of commercial spend, but few existing bundles5 (see Exhibit 1). By offering more bundles and targeting these burdensome conditions, health systems can secure the large buyers in the market and the accompanying volume needed to create a continuously improving bundles program.

Exhibit 1: Employer versus hospital interest in bundle conditions

Employer versus hospital interest in bundle conditions

Align market needs with institutional capabilities

Systems need to understand and capitalize on their nonclinical strengths.

Health systems should understand local market characteristics and their own strengths and design a bundles program that meshes with and leverages these realities. Different markets have different patient characteristics. For example, those with older populations may benefit from bundles targeting joint replacement, diabetes care, and, perhaps, congestive heart failure. Younger markets may present opportunities for maternity care, asthma, and sports medicine.

The market needs that a health system chooses to target should be aligned with that system’s capabilities. These capabilities include clinical strengths such as a strong cardiac, cancer, or even behavioral health program. But systems also need to understand and capitalize on their nonclinical strengths. For example, strong working relationships with specific employers, sponsors, and/or intermediaries can help a health system identify both which bundles to bring to market first and how best to attract patients. IT capabilities and medical staff structure may enable a health system to take on bundles that require more significant integration of care. Meanwhile, health systems that own or have strong partnerships with health plans can leverage their more expansive data as well as actuarial experience to offer higher-risk bundles for chronic conditions, which employers increasingly demand.

Use rapid prototyping to accelerate the rollout

Succeeding with bundles requires committing to bundles. Rather than test whether to pursue a bundle with a pilot, we encourage providers to commit to bundles on a large scale and begin experimenting broadly to identify how best to facilitate this goal. This process is sometimes called “rapid prototyping”: The organization begins with a bedrock assumption that bundles improve performance and works through small teams on multiple fronts to unlock this potential, rapidly rolling out efforts to redesign care pathways while waiting for IT and pricing capabilities to catch up.

The prototyping model encourages experimentation with minimal resources. However, the underlying commitment to bundles provides the value proposition for investment in baseline assets that will allow an organization to learn from these experiments. For example, organizations may invest in an improved capability to see cost and clinical-outcome information by medical condition. This data will allow them to understand the impact of any one initiative or change, and they can use those insights to continue improving performance over time.

Providers will not need to reinvent the wheel for every aspect of a new bundle under consideration. As more organizations move forward with bundles, new bundle adopters will be able to draw from existing protocols and pathways as well as models for how to identify viable teams, measures, and critical process steps. These resources should provide a head start and allow systems to move faster and further.

Capturing the benefits of care redesign

The commitment to bundles can seem daunting, and the complexity involved in creating a full-scale program would suggest that rewards are a far way off. However, there are significant near-term benefits and reasons to begin immediately.

Though the incentives created by the bundle payment model reinforce the imperatives of care redesign, in reality, organizations can achieve positive impacts on cost and quality well before any change in reimbursement. Much of this value can accrue to the provider right away. For example, our recent care redesign work on a spine surgery program yielded 16 percent in savings before any change in payment model.6

Put another way, the key innovation of bundles is care redesign. Sophisticated and seamless pricing is important in the long run, but there is much to be gained before new pricing systems take root.

The early years of cell phone technology posed similar pricing challenges. Tracking calls, tower ownership, usage plans, carriers, and so forth made billing and internal transfer pricing almost as large a challenge as the rollout of the new technology and infrastructure. Yet the billing system was clearly just an enabler of the cellular technology.

For healthcare providers, the analogy suggests it’s worthwhile to focus on the care redesign breakthrough and be patient as the supporting systems come on line to take the bundle concept to its full potential.

Looking forward

Bundled care has the potential to improve the healthcare system dramatically. Although consumers, employers, and payors are ready to step up, most providers have yet to deliver the full impact that these buyers seek. The majority of hospitals remain stuck on focused experiments that are costly to operate and limited in impact. Unless they set out to affect overall costs in a meaningful way, would-be bundle providers cannot hope to capture the volume necessary to create sustainable and continuously improving programs. Delivery systems need to move past the pilot mentality, develop comprehensive bundle strategies, and focus on scale. With this approach, bundles will produce the financial results demanded by the market and enable health systems to unlock the full potential of these new care models.


  1. Michael Bailit and Margaret Houy, “Key Payer and Provider Operational Steps to Successfully Implement Bundled Payments,” HCI3 issue brief, May 28, 2014.
  2. M. Susan Ridgely et al., “Bundled Payment Fails to Gain a Foothold in California: The Experience of the IHA Bundled Payment Demonstration,” Health Affairs, Aug. 2014.
  3. Although CMS’s Bundled Payments for Care Improvement initiative encouraged participation in 48 medical conditions or episodes, half of participating providers focused on just one or two conditions, and 72 percent enrolled in three or fewer. Thomas C. Tsai et al., “Medicare’s Bundled Payment Initiative: Most Hospitals Are Focused on a Few High-Volume Conditions,” Health Affairs, Mar. 2015.
  4. Based on Truven commercial database.
  5. AHRQ Medical Expenditure Panel Survey FY 2013.
  6. Strategy& client project.