by Joseph Rose, MD, SVP, Group Medical Officer 

This post is the first of a two-part series on the changes taking place in 2024 to the Bundled Payments for Care Improvement Advanced (BPCI-A) Medicare payment model. In this post, I cover what BPCI-A is and what will change starting in January 2024. In part two, I discuss the role physicians must play, the benefits to providers and patients, and what SCP Health is doing to prepare.

Significant changes are coming to Medicare's bundled payment model, Bundled Payments for Care Improvement Advanced (BPCI-A), in 2024. Financial pressures facing Medicare's ability to cover its costs are driving the change. Before I get into too much detail, however, let's look at the factors that led to this critical juncture.

Factors Leading to 2024 BPCI-A Payment Model Change

Two factors precipitated the sea change that has and is taking place in healthcare payments: rising costs and the need to improve quality.

Rising Costs

Most people are familiar with the fee-for-service payment model. That's how medicine used to work and how Medicare used to pay. But expenses started rapidly increasing in the 1980s and 90s. There was double-digit percent growth throughout each decade, so Medicare latched on to the value-based concept, quality divided by price, implemented in 2010 with the Affordable Care Act (ACA).

Quality Improvement

If you look at how the U.S. ranks with other first-world countries regarding medical care quality and cost, you will see that we're not at the top. Our life expectancy is not as high, infant mortality is not as low, and yet the amount of money we spend on medical care outpaces everyone.

In response, Medicare and CMS, through its Center for Medicare and Medicaid Innovation (CMMI), developed alternative payment models focused on paying for performance and replacing fee for service. The idea was to measure how hospitals are doing concerning performance and price and then to pay accordingly, the goal being to increase quality and decrease costs.

The payment models CMMI developed included Accountable Care Organizations (ACO), next-gen ACOs, Medical Home, Comprehensive Care for Joint Replacement, Bundled Payments for Care Improvement (BCPI), and BPCI Advanced (BPCI-A), the model discussed here that represents the future of pay-for-performance.

Along with bundled payment initiatives, Medicare built-in penalties to spur hospitals to embrace these new payment models. For example, Medicare penalized hospitals if they had too many readmissions or too many hospital-acquired infections, or if mortality rates were too high.

The ACA measures essentially put pay-for-performance on steroids, and Medicare's payment fortunes began to change. Medical care expenditures, which in the 1970s and 80s ran at a 12 percent and 10 percent growth rate, respectively, dropped dramatically to just 3.6 percent in 2018. That's close to GDP growth of 3.1 percent, capping out at 20 percent of total GDP on medical expenditures. Also, between 2012 and 2018, Medicare saved $667 billion compared to projected costs—$180 billion in 2018 alone.


According to the Government Accounting Office (GAO), while things were looking more favorable, Medicare was still slated to start running out of money in 2026. That does not mean its coffers would be dry—Medicare would still have enough funds to cover 91 percent of its bills—but that's when it would begin experiencing a shortfall. 

Then, enter COVID-19.

COVID-19's Effect on Medicare's Financial Issues 

On September 10, 2020, the GAO became the bearer of bad news, reporting that Medicare would begin running out of money in 2024 due to the massive expense associated with COVID-19. A great deal of pressure was then put on the government to find a way to reduce costs while still maintaining a high degree of quality.

With the looming financial pressure, CMMI announced that BPCI-A, a voluntary per episode payment model, would become mandatory beginning January 1, 2024.

What Is BPCI-A?

To quote CMS, the Bundled Payments for Care Improvement Advanced (BPCI-A) model aims to "support healthcare providers who invest in practice innovation and care redesign to better coordinate care and reduce expenditures, while improving the quality of care for Medicare beneficiaries."

The model, an updated version of BPCI, was established in 2018 to run through 2023, which means we are currently in model year four of six. With the model, the provider is now responsible for the price of hospitalization and the price of all care received for 90 days post-discharge.

Medicare will pay a targeted price for bundled care and will bonus hospitals up to 20 percent if they come under the target price. However, the hospital will reimburse Medicare up to 20 percent if it goes over the target price.

Allow me to explain in greater detail.

Typically, with fee-for-service, you put the patient in the hospital, took care of them, they left the hospital, you submitted your bills, and Medicare paid you back.

Also, in the old fee-for-service days, hospitals were only responsible for the anchor admissions costs. Medicare realized, however, that only one third (1/3) of the cost of hospitalization occurs during the actual admission, the other two thirds (2/3) in the 90 days following discharge.

With BPCI-A, Medicare comes up with a target price that it will pay to cover a standard hospitalization and post-discharge 90-day period. If the hospital and provider can come in under that price, they will receive the money they saved up to 20 percent. If they come in over the target price, they will write CMS a check for up to 20 percent of the overage.

Basically, Medicare is forcing the hospital and its providers to be financially responsible for the very expensive post-acute care space. That includes all charges related to in-patient rehab, skilled nursing facilities (SNF), long-term acute care, and home health. They are now also responsible for readmission costs and all other health visit costs.


Let's use a patient with a urinary tract infection to illustrate. 

If you put someone in their 70s with a UTI in the hospital who is pretty sick, typically, they will stay three or four days. Medicare will give you $25,000 to cover the total cost of care—the anchor admission, post-acute care, readmission, etc.—up to 90 days.

If you reduce expenditures through better care coordination and practice innovation and come in under the $25,000 mark, Medicare will give that money back to you up to 20 percent ($5,000 in this case).

That's a big carrot being dangled over the post-acute care part of the payment, but there's also a big hammer—if you go over that target price, you might actually write Medicare a check for $5,000.

Because, under BPCI-A, the hospital is responsible for the quality of care patients receive after leaving the facility, administrative and clinical staff have to start paying closer attention to that post-acute space. Even though there is not a great deal of cost variability in the hospital, there is a great deal of cost and quality variability across the county occurring after the patient leaves the hospital.

Skilled Nursing Facilities: Chief Waste Culprit

As you can see from the above graph, SNFs are where a huge chunk of the money is spent and where a lot of waste occurs. (They are not the only culprit here but a big one.)

Medicare recommends that for most of the diagnoses in the BPCI-A program an SNF should keep patients between 14 and 20 days. However, many keep them much longer—nationally, 30 to 40 days, and often more. Their outcomes are not better with the added days, but the costs are much more significant. Decreased value is the result.

Nursing homes make roughly $500 per day, so if they keep patients 10 to 20 days longer than recommended then an increased cost of $5,000 to $10,000 results. No more value is achieved from this longer stay / higher cost, and now, under BPCI-A, the hospital and providers will be responsible for those unnecessary costs.

One of the ways to remedy this issue is by creating hospital networks for post-acute care patient placement. You essentially make the facilities compete. They will be awarded “In-Network Status” if they provide high quality and low cost. If they want to be in your hospital’s network, then they must perform. They have to demonstrate high value (low readmissions, low mortality) and low cost due to a more appropriate length of stay.  

BPCI-A and SCP Health Hospital Medicine Programs

Last year, at SCP, we had 24 hospital medicine programs using the BPCI-A payment model. This year, we will have 37. Starting January 1, 2024, the date the model’s use becomes mandatory, all of our over 100 hospital programs will then be involved.  

Mandatory use of BPCI-A does not only affect SCP Health, however. It's going to hit every facility in the country whether they know what BPCI-A means or not—and a lot of them do not.

At this point, we don’t know what percentage of patient payments will be affected by BPCI-A when it goes mandatory in just 35 months. However, our current experience shows it impacts about 30 percent of our Medicare patients. Will it be more? Will it be less? No one knows, but the percentage affected will certainly be significant. 

The bottom line? If you want to be a successful hospital or hospital provider, you must become very well acquainted with how to run a successful BPCI-A program. It’s not easy. It takes a lot of time and commitment. However, it can be done, and we’d love to show you how to do it. Your patients will benefit from higher-value care as well.

Remember the carrot and the hammer. One of them is coming to you in the very near future.

Keep tuning in to the blog for part two of our BPCI-A series, as well as other best practices and insights from our SCP experts.