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Direct Contracting Strategies – Retrospective Bundled Payment Arrangements

By Cliff Frank

Bundled Payment arrangements between providers and self-funded employers are a compelling way to reduce costs and improve outcomes for covered beneficiaries. A Rand Study1 confirmed savings potential from bundled services of 5-23% depending on the population and condition. Savings are generated through lower cost, better outcomes and efficiencies that eliminate waste.

Healthcare providers are looking for ways to reach beyond traditional PPO networks to facilitate these savings to self-funded employers. Why? PPO networks have done a poor job of delivering on their promises of driving volume to providers in exchange for substantial discounts.

Direct-to-employer bundled payment arrangements offer both clinical value and financial savings to employers, new volume to providers, all while avoiding the trips and traps of insurer-driven arrangements.

How it Works

We develop bundled payment arrangements that are simple to design, administer, and evaluate. For each bundle, the self-insured employer and provider agree on the scope of clinical services, a duration of time for the bundle, and a price or budget. When services are delivered, the provider bills the administrator for the employer’s health benefits, and claims are paid in the traditional fee-schedule manner. At certain intervals (quarterly, semi-annually), the claims applicable to each bundle are tabulated, and compared to the budgeted price. If the claims cost is over the target price, then the provider writes the employer a check for the overage. If the claims cost is less than the target price, then the employer writes the provider a check for the difference. The provider remains accountable for cost, quality, patient satisfaction and clinical outcomes. Bundles can be developed for both surgical and chronic illness conditions as outlined below.

Getting Started


  • Develop a package of defined medical services with specific providers for specific condition or illness with fixed price over a defined period.

  • Define services that are included in each bundle while considering carve-outs (certain types of cases, certain services), provider-excess insurance coverage for extraordinarily large or complex cases and duration of bundle (30 days, 90 days, all year?)

  • Document division of financial responsibility between service providers and plan sponsor through a Definition of Financial Responsibility (DOFR) matrix

  • Set budget amount per case for each bundle type

  • Patient receives services, providers bill payer, payer adjudicates claims, employer funds claims

  • Quarterly reconciliation compares amount paid to budget; providers and employer settle-up

Medical Services
The following services will be included based on the specific bundle:
Professional specialty physician services
Hospital inpatient, outpatient, ER, rehab
Infusion – office, home, hospital outpatient
Specialty medications

Bundle Examples
Chronic Disease Bundles – Annual amount divided into 12 monthly payments for:
Crohn’s disease – $60,000
Ulcerative Colitis – $50,000
Chronic Obstructive Pulmonary Disease (COPD) $12,000
Osteoporosis $8,000
Rheumatoid Arthritis $32,000
Multiple Sclerosis $18,000
Chronic Kidney Disease $80,000
Sleep Apnea $4,000
Congestive Heart Failure $12,000

Acute Condition Bundles – 30, 60, or 90-day duration
Knee joint replacement surgery $12,000
Hip joint replacement surgery $25,000
Hernia surgery $6,000
Gall Bladder surgery $8,500
Spine surgery $42,000
Hysterectomy surgery $14,000


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