Bundled payments is - in essence - the transition from paying providers for discrete activities (a test, a visit, a surgery) toward one that ties payments to treatment of entire episodes of care (a pregnancy, a total hip replacement, diabetes care) and incorporates the concept of outcomes. Using the concept of healthcare bundled payments, payors (including the government), can better align incentives, increase predictability, reward quality and encourage integration and coordination of care. This sort of approach is not really new - it is building on the DRG (diagnostic related group) concept first introduced by Medicare in 1982. DRGs combine payments for procedures and inpatient stays based on a patient's diagnosis. Bundled payment offers payment for a complete package of care for a specific condition - where a single fee will cover everything related to a condition or treatment of a particular problem from diagnosis through care to recovery. For example, a knee replacement bundle would cover everything from diagnosis and surgery to rehab - whatever is necessary for a patient to have a fully functional knee. Patients - and payors - are given a clear outline of the activities and costs associated with the condition up front before care begins. Bundled payments are similar to other constructs that have been used in the past including global payments and capitation. Global payments are lump sums per treatment (combining payments for facility fees, technical charges, medical equipment and pharmaceutical interventions) while capitation is lump sum per patient for a defined period of time. All three models emphasize concepts such as care teams, panel management, prevention and wellness, care guidelines, evidence-based medicine and patient engagement. Medical conditions that particularly high cost with controllable variability and relatively standard protocols are the easiest to bundle - most demonstration projects to date have focused on surgical interventions such as cardiac and orthopedic procedure. Other potential areas include maternity care and select oncologic diseases. Bundles should provide both pricing that is easy to understand and payment structures that are attractive to providers. With the current fee for service model, different types of providers - physicians, therapists, hospitals - gain only from maximizing the performance of their own interventions and have little reason to consider how their activities impact the total cost of care. Whereas with bundled payments, hospitals and physicians have an incentive to share information and jointly invest to improve service and lower the overall cost of care. Payors - who have the capital and risk pool (a population of patients large and broad enough to bear the risk of a few high-cost outliers) to manage risk have generally assumed all the risks associated with patient treatment and outcomes. To be successful in this new model, providers are going to have to develop new risk-adjustment tools that can accurately and prospectively predict the cost of care for a given patient. Early demonstration projects show bundles have the potential to reduce the costs associated with the care of certain conditions while improving quality and encouraging patient engagement primarily by increasing transparency and predictability and by aligning incentives for all involved to manage treatment to a desired outcome.(1) Ultimately, using this new model, payors can develop bundles that enable consumers to "shop" for the care that gives them the desired outcome, convenience and price point they want.