A new study suggests Medicare spending on healthcare in its Bundled Payment Program could be improved by calculating target prices as accurately as possible.

  • Case management and other resources could become more effective and efficient.
  • Researchers compared Bundled Payments for Care Improvement Advanced program to an empirical Bayes approach in how accurately each determines target prices.
  • Using bundled payment plans could provide hospitals with extra resources up front and reduce patient costs for extra healthcare services, thus providing a higher quality of care.

The way Medicare determines healthcare spending under its Bundled Payment Program could be improved with a different approach, a new study revealed.1

“This study suggests a health system should be aware of how statistical issues play into the target prices they are offered under bundled payment plans, and they should study closely how bundled payment prices are calculated,” says Benjamin Cher, MS, MD candidate class of 2022 at the University of Michigan Medical School. “They should look at how they may be calculated in the future, which could change their decisions on whether to participate in these programs and how to structure their responses to these programs.”

Research like this study suggests ways health systems can more effectively and efficiently use their case managers and other resources. For instance, case managers play a tremendous role in reducing inappropriate spending that leads to a financial loss for hospitals under the bundled payment plan.

Bundled Payments for Care Improvement Advanced (BPCI Advanced) uses a traditional methodology formulated by CMS. Researchers compared this methodology to an empirical Bayes approach, which is designed to mitigate the effects of regression to the mean.1

Under BPCI Advanced, providers are paid a certain amount per patient that is supposed to encompass all care for a specific procedure. “The amount of money that providers are paid is the target price. One of the challenges in the bundled payment program is figuring out how to calculate an accurate target price,” Cher says.

This is especially challenging when the program is voluntary. If the target price offered is high, many providers will join the program. But if the target price is too low, fewer providers will join the program.

“It’s kind of like a Goldilocks problem, where too high is a problem and too-low target prices are a problem as well,” Cher says. “The goal of this study is to determine a way to solve that Goldilocks problem by calculating target prices as accurately as possible.”

Cher has seen firsthand how hospitals could benefit from extra resources up front to provide higher-quality care to patients and cut costs.

“As a medical student, I have had the opportunity to see many cases in the hospital where patients were readmitted or required extra expenses in hospital services because the hospital did not provide the patients with enough upfront resources for care to help them avoid future costly health needs,” Cher explains. “As someone interested in health policy, I am excited about bundled payment plans because I can see them having direct implications both for addressing healthcare costs and for improving patient outcomes.”

CMS was the study’s primary audience, but it also is important for providers to know the current bundled payment system is not as efficient as it should be, Cher notes. CMS may consider adopting a different method that will close current funding loopholes.

“Perhaps health systems need to reconsider in the future how they’re going to participate in these bundled payment programs, knowing that CMS may have incentives to change its method of calculating target prices,” Cher says.


  1. Cher BAY, Gulseren B, Ryan AM. Improving target price calculations in Medicare bundled payment programs. Health Serv Res 2021 Jun 2. doi: 10.1111/1475-6773.13675. [Online ahead of print].