Article | Bundled Payment

How CMS sets the target price for bundles under BPCI-A

Article | Bundled Payment

How CMS sets the target price for bundles under BPCI-A

How CMS sets the target price for bundles under BPCI-A In Medicare’s Bundled Payments for Care Improvement Advanced (BPCI-A) model, as with the previous BPCI model, CMS calculates target prices for each clinical episode that participants have selected.

An episode is defined as the period that begins with a BPCI-A- specific DRG hospital admission and continues through 90 days post-discharge. The episode cost includes all Medicare payments made to participating providers who deliver services to the beneficiary during that 90-day period.

For each participant, CMS calculates target prices for the specific clinical episode selected by that participant. At the end of each participation year, the target prices are compared with the actual episode costs. If a participant’s total episode costs are below their target price, they will receive the difference in the form of a positive net payment reconciliation amount (NPRA), or shared savings, from CMS. However, if a participant’s total episode costs are greater than the target price, the difference will be owed to CMS as a negative NPRA, or repayment.

In the original BPCI program, target prices were calculated primarily from each provider’s historical costs, allowing participants to receive payments from CMS by reducing costs below their own previous experience. BPCI-A target prices, however, apply a more complex methodology, comprising three key components:

  1. An efficiency factor, which adjusts for the ratio of historical costs to predicted clinical episode spending for participants with a similar patient case -mix
  2. A peer-adjusted trend (PAT) factor, which accounts for participant-level factors, such as a hospital’s geographic region, bed-size, urban/rural classification and the teaching and safety net status
  3. A patient case-mix adjustment (PCMA), which is based on the actual patient case -mix during the performance period

The efficiency factor has a significant impact on the target price, because it adjusts for a participant’s historical experience. Participants with relatively higher historical costs will have higher target prices, while participants with historically lower cost will have lower targets. In some circumstances, the narrowing of target prices has the potential to create a race to the bottom, or a situation in which costs cannot be further reduced without affecting quality.

Therefore, participants that had previously achieved cost savings in the BPCI program are forced to find new ways to reduce spending. This reduction is particularly challenging for previously efficient participants, because many of the more easily implemented cost management strategies will already have been applied.

In rare instances, the combination of the three adjustments can yield target prices that are significantly higher than baseline episodes costs, meaning that few cost reductions, and hence few clinical changes, may be necessary to create a positive NPRA. This result generally occurs for participants with high costs relative to the hypothetical population used to compute the efficiency factor, high patient complexity resulting in elevated PCMA factors and/or provideror episode-specific characteristics that result in a high PAT factor.

Conversely, target prices are occasionally so low that participants would face guaranteed losses, regardless of the clinical initiatives they implement. These low target prices occur frequently with major joint replacement episodes in which the PAT factor is quite low. This low PAT factor is the result of episode cost reductions that have occurred nationwide in other value-based care models, such as BPCI and the Comprehensive Care for Joint Replacement programs.

About the Authors

Erin Hahn, MPH,

is health policy analyst, value-based care, Association of American Medical Colleges, Washington, D.C. (

Jonathan Pearce, CPA, FHFMA,

is principal, Singletrack Analytics, LLC, Woodbury, N.J., and a member of HFMA’s Metropolitan Philadelphia Chapter (

Theresa Dreyer

is lead, value-based care, Association of American Medical Colleges, Washington, D.C. (

Heather Peiritsch, MSN, RN, NEA-BC,

is bundle payment program manager, Abington Jefferson Health, Abington, Pa. (


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