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Bundled payments for care are an efficient mechanism to align payer, provider, and patient incentives in the provision of health care services for an episode of care. In this chapter, we use agency theory to examine the evolution of bundled payment programs in private and public payer arrangements, and postulate future directions for bundled payment development as a key component in the provision and payment of health care services.

The main purpose of this study is to provide healthcare institutions with a management accounting framework that helps them achieve their quality goals and cost targets when providing services under bundled payment schemes.

After providing a theoretical framework on both bundled payments and target costing, the success factors of the former are compared with the principles of the latter in order to analyze the compatibility and complementarity of these models. Afterwards, an example of their potential combination in practice is introduced and ideas for future research are suggested.

It is concluded that, apart from presenting similar underlying goals as regards quality and cost, bundled payments and target costing display elements in common that make them compatible from a theoretical standpoint.

Because bundled payments models are relatively new, studies on their compatibility with managerial techniques emerging from industries other than healthcare do not abound in the literature.

The paper seeks to propose and test a theory of the psychological impact of price bundling that is derived from bundling's economic impact. It is called the inferred bundle saving hypothesis. In the absence of explicit information about bundle savings, consumers infer a bundle saving when presented with a bundle offer. It is suggested that inferred bundle saving provides a simple, parsimonious explanation for pre‐ and post‐purchase bundle effects.

The theory is tested in two laboratory studies that employ partial replications of two prior price bundle studies.

The results show that the inferred bundle saving effect is robust in both product and service contexts, and can potentially explain the bundle effects found in these two studies.

Additional experimental studies are recommended to further test the proposed theory.

First, contrary to convention, it is not always optimal for firms to integrate price information in a single bundle price. Second, firms may sometimes use the price‐bundling format to signal a bundle saving without actually offering one. Third, firms can manage consumption and expected refund of bundles by manipulating consumer perception of bundle saving.

It is intuitive that consumers expect a bundle saving. However, this paper is the first to establish empirically the existence of this inferred bundle saving and demonstrate its potential as a theoretical explanation for various bundle effects. The research challenges the extant view that price bundling per se always enhances consumer pre‐purchase evaluation. Moreover, it connects economic and psychological research, as well as pre‐ and post‐purchase analysis, of bundle effects.

Three types of payment methods have been introduced across European countries in attempts to encourage better, more integrated care of persons with multimorbidity: pay-for-performance; pay-for-coordination; and an all-inclusive payment method. We examine whether there are differences in the way these payment methods affect health and healthcare use in persons with multimorbidity.

Using individual-level survey data from twenty European countries, we examine unadjusted differences in average outcomes for the years 2011–2015 by whether countries adopted new payment methods for integrated care. We then test for a differential effect for multimorbid persons using linear, individual random effects regressions, including country and time fixed effects and clustering standard errors at the country level.

We find little effect of varying payment methods on key outcomes for multimorbid individuals despite the theoretical predictions and the rhetoric in many policy documents.

Policymakers should bear in mind that the success of the payment method relies on the specific design of the incentives and their implementation. New effective models of care and how to incentivise these for multimorbid patients is an ongoing research priority.

This paper is the first to study the effects of payments for integration on the dimensions and populations these schemes intend to affect; health and healthcare use at the individual level for multimorbid individuals.

There are longstanding concerns about the sustainability of the US health care system. Payment reform has been seen over the last decade as a key strategy to reorienting the US health care system around value. Alternative payment models (APMs) that seek to accomplish this goal have become increasingly prevalent in the US, yet there is a perception that physicians are resistant to their use and that organizations have been slow to adopt such models. The reasons for the limited effectiveness of APM programs are multifactorial and include aspects related to the design and implementation of these programs and lack of alignment and coordination across different payers and health care sectors. Most importantly, however, is that the current organizational structures in US health care serve to dampen the direct impact of these incentives, often because health care delivery organizations face conflicting incentives themselves. Organizations filter and refine the incentives from multiple external payment contracts and develop internal incentive systems that best reflect the amalgamation of the incentives embedded across their contracts, and thus the fragmented nature of the US health care system serves to undermine efforts to transform care under value-based contracts. In addition to organizations having conflicting incentives, there also are fundamental problems with the design and implementation of APMs that hinder their acceptance among physicians and the organizations in which they work. Moreover, much remains to be learned about how organizations can best adapt to succeed under these models, and how organizational culture can be leveraged to transform care.

To survey the policy-driven financial controls currently being used to drive physician change in the care of populations

This paper offers a review of current health care payment models and discusses the impact of each on the potential success of PHM initiatives. We present the benefits of a multi-part model, combining visit-based fee-for-service reimbursement with a monthly “care coordination payment” and a performance-based payment system.

A multi-part model removes volume-based incentives and promotes efficiency. However, it is predicated on a pay-for-performance framework that requires standardized measurement. Application of this model is limited due to the current lack of standardized measurement of quality goals that are linked to payment incentives.

Financial models dictated by health system payers are inextricably linked to the organization and management of health care.

There is a need for better measurements and realistic targets as part of a comprehensive system of measurement assessment that focuses on practice redesign, with the goal of standardizing measurement of the structure and process of redesign. Payment reform is a necessary component of an accurate measure of the associations between practice transformation and outcomes important to both patients and society.

Attempts to transform health systems have in many countries involved starting to pay healthcare providers through a DRG system, but that has involved managerial workarounds. Managerial workarounds have seldom been analysed. This paper does so by extending and modifying existing knowledge of the causes and character of clinical and IT workarounds, to produce a conceptualisation of the managerial workaround. It further develops and revises this conceptualisation by comparing the practical management, at both provider and purchaser levels, of hospital DRG payment systems in England, Germany and Italy.

We make a qualitative test of our initial assumptions about the antecedents, character and consequences of managerial workarounds by comparing them with a systematic comparison of case studies of the DRG hospital payment systems in England, Germany and Italy. The data collection through key informant interviews (N = 154), analysis of policy documents (N = 111) and an action learning set, began in 2010–12, with additional data collection from key informants and administrative documents continuing in 2018–19 to supplement and update our findings.

Managers in all three countries developed very similar workarounds to contain healthcare costs to payers. To weaken DRG incentives to increase hospital activity, managers agreed to lower DRG payments for episodes of care above an agreed case-load ‘ceiling' and reduced payments by less than the full DRG amounts when activity fell below an agreed ‘floor' volume.

Empirically this study is limited to three OECD health systems, but since our findings come from both Bismarckian (social-insurance) and Beveridge (tax-financed) systems, they are likely to be more widely applicable. In many countries, DRGs coexist with non-DRG or pre-DRG systems, so these findings may also reflect a specific, perhaps transient, stage in DRG-system development. Probably there are also other kinds of managerial workaround, yet to be researched. Doing so would doubtlessly refine and nuance the conceptualisation of the ‘managerial workaround’ still further.

In the case of DRGs, the managerial workarounds were instances of ‘constructive deviance' which enabled payers to reduce the adverse financial consequences, for them, arising from DRG incentives. The understanding of apparent failures or part-failures to transform a health system can be made more nuanced, balanced and diagnostic by using the concept of the ‘managerial workaround'.

Managerial workarounds also appear outside the health sector, so the present analysis of managerial workarounds may also have application to understanding attempts to transform such sectors as education, social care and environmental protection.

So far as we are aware, no other study presents and tests the concept of a ‘managerial workaround'. Pervasive, non-trivial managerial workarounds may be symptoms of mismatched policy objectives, or that existing health system structures cannot realise current policy objectives; but the workarounds themselves may also contain solutions to these problems.

Healthcare alliances are a mechanism for developing collaborative and integrated care governance and service delivery arrangements. Yet is not known how widespread alliance arrangements are in Organisation for Economic Co-operation and Development (OECD) countries, how alliances function or how effective they are. The purpose of this paper is to provide an overview of alliances in OECD countries, including key areas covered and how performance is measured.

A structured narrative review of literature published between 2010 and 2018 was undertaken, focussed on OECD countries. The literature included peer-reviewed articles as well as publications from key policy analysis organisations.

Many OECD countries have implemented integrated care models but only a small number had explicitly adopted health alliances that link primary and secondary providers under joint governance arrangements. Most alliances are pilot initiatives and not broadly adopted. Most had not adopted a unified performance measurement framework.

Policy makers and service providers interested in joint governance arrangements that support integration must consider the range of potential options overviewed in this paper, as well as how to create supportive performance measurement frameworks.

This is the first narrative review of alliance arrangements in OECD countries. It provides an overview of arrangements, while illustrating that there is considerable scope for further alliance development.

Due to recent Affordable Care Act reforms, prevention of readmissions is a salient issue for hospitals that participate in Medicare, as they are now held accountable for patients who receive post-acute care in facilities over which hospitals have little influence to monitor care. Using resource dependence and transaction cost economics to describe the theoretical advantages of hospital ownership of post-acute care facilities (PACs), we empirically test whether hospitals that own PACs experience reduced readmissions. Our findings indicate partial support for the predicted relationship between PAC ownership and readmission rates. We found that hospital ownership of a skilled-nursing facility (SNF) was related to a lower readmissions rate for some patients, while ownership of other types of PACs did not result in significant findings. Our results offer support for the theoretical advantages of ownership, however, the savings realized by ownership may not merit the ownership investment.