In a managed care context, what best explains episodic (bundled) payments?

• A. They are monthly per member payments.
• B. They are a global capitation covering all care for all members.
• C. They cover a defined care episode, encouraging efficient care within that episode.
• D. They are paid only after the care episode is completed.

Answer: (C)

Episodic payments bundle a single, predefined amount to cover all the care needed for a defined episode of care, from start to finish. This means one price is set for an entire episode—such as a knee replacement or a childbirth bundle—encompassing hospital care, physician services, and post-acute care within that episode. Because the provider is responsible for delivering all services within that bundled price, there’s a strong incentive to coordinate care, avoid unnecessary tests, and manage resources efficiently. If costs stay under the bundle, savings accrue to the provider or payer; if costs exceed it, the provider bears the extra expense, which encourages tight management of the episode. This approach differs from paying monthly per-member amounts (capitation) or global capitation that covers broader, ongoing care across many conditions and timeframes. The defining feature is coverage of a defined care episode within a single bundled payment, rather than the timing of payment or the breadth of covered years.