The encyclopedia · Finance & Accounting · Financial decision · 2018–2024
CMS paid hospitals one price for an episode, so savings stayed shared with Medicare
BPCI Advanced gave hospitals a fixed target price per episode, and participants cut episode spending and kept a share.
Centers for Medicare & Medicaid Services · participating US hospitals · Medicare
the move
Traditional fee-for-service pays per service, rewarding more care even when it adds no value.
BPCI Advanced sets a target price for a full clinical episode, including the 90 days after discharge.
Hospitals that stay under target share the savings with Medicare; those over target repay.
This shifts the financial incentive from volume to the cost and quality of the entire episode.
why it works
- One price per episode makes the hospital own the whole care path.
- Savings-sharing rewards coordination rather than extra services.
- The repayment risk is symmetric, so cost control is not one-sided.
- Quality of care is measured alongside cost, not traded off for it.
what transfers
To move providers from volume to value, price the whole outcome and let them share the savings — the unit of payment changes the behaviour.
what came after
In Model Year 5, BPCI Advanced generated about $344 million in savings to Medicare (roughly 4% of what payments would otherwise have been). Earlier model years had net losses, and later analysis showed per-episode reductions averaging about $324, tempering claims that the program reliably saved money.
references
- BPCI Advanced Model: Sixth Annual Evaluation Report
- TEAM Strategy: Lessons from 6th Annual BPCI-A Evaluation Report
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