When designing bundled payments, don’t ignore the lessons of behavioral economics

In health care, all bundled payment models shift financial and clinical accountability to a single provider-led entity that then is responsible for a budget and the quality of care delivered for any given episode. The entity receiving the bundled payment earns a higher margin if a patient has fewer expenditures but also bears the financial risk of (re)admissions and complications. This payment model therefore produces an incentive for providers to coordinate care across settings and not to stint on needed care. When implementing bundled payment models, payers and providers can choose two main strategies regarding the payment flow, namely a prospective payment (which is made before services are rendered) or a retrospective payment (which is made after all services are rendered).