Bundled Medicare payment for acute and postacute care

One legislative policy option for controlling postacute care costs is for Medicare to make a "bundled" payment to hospitals to cover episode costs: acute plus postacute care costs. But a bundled payment might not match the costs of treatment as well as payment now does under Medicare's prospective payment system (PPS). Simulating hospital margins with and without postacute care costs, this paper finds that risks to the typical hospital would not increase under postacute care bundling. A central characteristic of a bundled payment is that it would cover multiple providers. From this characteristic comes bundled payment's major strength: cost containment.