Bundled Payments for Medical Devices: BPCI-Advanced, CJR & Implant Pricing

A strategic playbook for medical device companies navigating CMS bundled payment models (BPCI-Advanced, CJR). Dissects implant pricing and NTAP/OPPS exclusions.

Medicare payment reform has fundamentally transformed the relationship between hospital purchasing departments and medical device manufacturers. The shift from volume to value is nowhere more apparent than in episode-based alternative payment models. By shifting the financial risk of post-operative care onto hospital providers, the Centers for Medicare & Medicaid Services (CMS) has indirectly placed downward pressure on the pricing of high-volume, high-cost medical devices and implants.

For commercial and market-access teams selling orthopedic implants, cardiac devices, or surgical technologies, understanding these bundled payment models is critical. When a hospital operates under a fixed retrospective target price for a 90-day clinical episode, every dollar spent on an implant directly erodes the hospital’s potential profit margin.

This guide delivers a strategic playbook for MedTech organizations navigating CMS bundled payment programs. It details the mechanics of key models, examines their impact on implant pricing, highlights crucial device-specific exclusions, and outlines commercial strategies to defend product value inside a bundle.

Scenario Question: Our medical device or implant is used inside a Medicare episode such as a joint replacement or cardiac procedure. How do CMS bundled and episode-based payment models (BPCI-Advanced and CJR) affect our product pricing, and how do we defend its commercial value to hospital purchasing committees?

Direct Answer: CMS episode payment models establish a single retrospective target price for an entire 90-day clinical episode, meaning hospitals are financially responsible for all inpatient, outpatient, and post-acute care costs. Under models like BPCI-Advanced (voluntary, covering 32 clinical episodes with 1,299 participating entities at launch) and CJR (mandatory joint replacement built on MS-DRGs 469 and 470), hospitals are squeezed to reduce episode spending, leading to direct pricing pressure and vendor consolidation for implants. To defend pricing, manufacturers must demonstrate how their technology reduces overall episode costs (such as reducing readmissions or post-acute rehab stay duration, which are included in the bundle), structure risk-sharing agreements, or determine if the device qualifies for bundle exclusions. Specifically, CMS excludes New-Technology Add-On Payments (NTAP) under the inpatient prospective payment system and items with Outpatient Prospective Payment System (OPPS) pass-through status from the clinical episode calculations, meaning carve-out eligible devices are insulated from bundle-related pricing pressure.

1. What Are Bundled Payments and Episode-Based Models?

Historically, Medicare reimbursed hospitals and physicians under a Fee-for-Service (FFS) model. In FFS, each component of a patient’s care—the inpatient stay, the surgeon's fee, the post-acute rehabilitation, and the individual medical devices used—is billed and reimbursed separately. This created an incentive to increase the volume of services, as more services yielded higher revenue.

Episode-based or bundled payments replace FFS with a single payment that covers all services provided to a patient for a specific clinical condition or surgical procedure across a defined timeframe (the "episode window").

The Episode Window and Target Pricing

Under the most common CMS frameworks, the episode begins with an anchoring inpatient admission or outpatient procedure and extends for 90 days post-discharge.

At the start of a performance year, CMS establishes a baseline "target price" for the episode. This target price is calculated retrospectively based on historical Medicare spending for similar patients in that specific region or hospital, adjusted for patient risk factors and inflation.

Retrospective Reconciliation

During the performance period, providers continue to bill Medicare under the traditional fee-for-service system. However, at the end of the performance year, CMS performs a retrospective reconciliation:

If the actual spending is lower than the target price: The hospital achieves a "net savings" and receives a reconciliation payment (a "gainsharing" bonus) from CMS.
If the actual spending exceeds the target price: The hospital is financially responsible for the difference and must pay a reconciliation penalty back to CMS.

By shifting this financial risk onto the provider, CMS incentivizes hospitals to eliminate clinical inefficiencies, reduce length of stay, minimize readmissions, and curb the cost of the supplies and devices used during the anchoring procedure.

2. Key CMS Bundled Payment Programs: BPCI-Advanced and CJR

The CMS Innovation Center (CMMI) has developed and piloted multiple episode-based payment models. The two most significant programs impacting the medical device industry are the Bundled Payments for Care Improvement Advanced (BPCI-Advanced) model and the Comprehensive Care for Joint Replacement (CJR) model.

BPCI-Advanced

Launched on October 1, 2018, BPCI-Advanced is a voluntary alternative payment model designed to test whether retrospective bundled payments can reduce Medicare expenditures while maintaining quality.

Clinical Scope: BPCI-Advanced initially included 32 clinical episodes (29 inpatient and 3 outpatient). The top three episodes selected by participating entities were Major Joint Replacement of the Lower Extremity, Congestive Heart Failure, and Sepsis.
Participation: The model drew massive initial interest, with 1,299 participating entities (including acute care hospitals and physician group practices) signing agreements to participate at launch.
Advanced APM Status: Under the Quality Payment Program (QPP) established by MACRA, BPCI-Advanced qualifies as an Advanced Alternative Payment Model (Advanced APM), allowing participating clinicians to earn incentive payments and bypass certain reporting requirements.

CJR (Comprehensive Care for Joint Replacement)

Unlike the voluntary BPCI-Advanced program, the CJR model was established as a mandatory bundled payment program for lower-extremity joint replacements (LEJR). Lower-extremity joint replacements (primarily total hip and total knee arthroplasties) are the most common inpatient surgeries for Medicare beneficiaries.

Coding Foundation: The CJR model is built on Medicare Severity Diagnosis-Related Groups (MS-DRGs) 469 (Major joint replacement or reattachment of lower extremity with major complications) and 470 (Major joint replacement or reattachment of lower extremity without major complications).
Scope and Scale: The program originally made participation mandatory for hospitals in 67 metropolitan statistical areas (MSAs), later reduced to 34 MSAs for subsequent performance years. The program was subsequently extended through a May 3, 2021 Federal Register final rule (CJR Model Three-Year Extension and Changes to Episode Definition and Pricing, 86 Fed. Reg. 23496).
Clinical Window: The CJR episode begins with a hospital admission for joint replacement and extends 90 days post-discharge, covering the surgery, inpatient stay, physician fees, physical therapy, home health, and any subsequent readmissions.

Table 2: CMS Bundled Payment Models Compared

Program	Participation	Anchoring MS-DRGs / Procedures	Episode Duration	Device Implications
BPCI-Advanced	Voluntary (retrospective APM)	32 clinical episodes (e.g., hip/knee, cardiac, spine, sepsis)	90 days post-anchoring discharge	Excludes NTAP and OPPS pass-through devices from episode target price.
CJR	Mandatory in designated MSAs	MS-DRG 469 and 470 (Lower-extremity joint replacement)	90 days post-discharge	High implant price pressure; drives vendor standardization.

3. Direct Impact on Medical Device and Implant Pricing

Bundled and episode payments represent a significant commercial challenge for medical device manufacturers. Under traditional fee-for-service, hospitals could treat implant costs as pass-through supplies, frequently passing the bill to Medicare or private insurers. Under bundled care, the implant is a direct expense that must fit within a fixed financial budget.

This structural shift squeezes device manufacturers through three primary mechanisms:

The Episode Spending Reality

Medicare spends billions of dollars annually on joint replacement and cardiac procedures. In 2013, hip and knee replacements accounted for roughly 400,000 inpatient procedures costing Medicare more than $7 billion for hospitalizations alone.

An average inpatient joint replacement hospitalization cost between $16,500 and $33,000, depending on complications. Under the CJR model, the hip/knee implant itself represents the single largest supply cost of the anchoring surgery, often accounting for 20% to 30% of the initial hospital stay cost.

Evaluation data published by the Kaiser Family Foundation (KFF) and the CMS Innovation Center reveals the financial pressure:

Under early BPCI performance, Medicare achieved average savings of roughly $1,273 per episode in the hip/knee replacement category.
In the first CJR performance year, reconciliation payments paid back to hospitals totaled $37.6 million, averaging $1,134 per episode in gainsharing.

These savings did not come from reducing clinical quality; they came from shortening post-acute rehabilitation stays and negotiating lower prices for orthopedic implants.

Vendor Consolidation and "Capitated" Pricing

To capture the savings required to earn CMS reconciliation bonuses, hospitals have aggressively consolidated their medical device vendor lists.

Rather than allowing surgeons to select from five or six different implant systems, hospital purchasing departments now run competitive requests for proposals (RFPs) to award "preferred vendor" status to one or two manufacturers in exchange for steep price discounts. Hospitals establish "capitated" implant pricing caps (e.g., capping the total price of a knee implant construct at $3,500), refusing to purchase any device that exceeds the cap.

Surgeons as Economic Gatekeepers

Under CMS gainsharing regulations, hospitals are permitted to share a portion of their bundled payment savings directly with participating physicians (subject to strict legal limits). This financial alignment turns the surgeon—traditionally the manufacturer's primary advocate—into an economic gatekeeper who has a personal financial interest in reducing the cost of the implant.

4. The Device-Critical Carve-Outs: NTAP and OPPS Pass-Through Exclusions

For manufacturers of novel, high-cost medical technologies, the price pressure of a bundled payment model can block market entry. If a new technology adds $5,000 to the cost of a surgery but does not immediately reduce hospital length of stay, a hospital operating under a bundled payment model will refuse to adopt it.

To prevent bundled payments from chilling medical innovation, CMS established critical exclusions within the BPCI-Advanced and CJR models. These carve-outs represent the most important regulatory pathways for MedTech commercialization.

The BPCI-Advanced NTAP Exclusion

In its official model parameters and fact sheets, CMS clarified that BPCI-Advanced clinical episodes exclude New-Technology Add-On Payments (NTAP) under the Inpatient Prospective Payment System (IPPS).

What is NTAP? NTAP is an additional payment Medicare provides to inpatient hospitals to help offset the cost of using novel, high-cost medical technologies that demonstrate a substantial clinical improvement. For a detailed guide on the criteria and timelines for these payments, see our strategic guide on the NTAP new technology add-on payment for medical devices.
The Bundle Exclusion: If a patient receives an implant that has been granted NTAP status during an anchoring hospital admission, the cost of that technology is carved out of the retrospective reconciliation calculation. The hospital receives the standard NTAP add-on payment, and the cost is not charged against the hospital’s BPCI-Advanced episode target price.
Commercial Implication: This exclusion removes the within-bundle price pressure. A manufacturer can market an NTAP-approved device to BPCI-Advanced participating hospitals without the hospital fearing that the high price of the technology will trigger a retrospective Medicare penalty.

The OPPS Pass-Through Exclusion

For outpatient clinical episodes, BPCI-Advanced similarly excludes items that have been granted pass-through payment status under the Outpatient Prospective Payment System (OPPS).

What is OPPS Pass-Through? Pass-Through payments are transitional add-on payments designed to cover the cost of new drugs, biologicals, and medical devices used in hospital outpatient departments and ambulatory surgery centers (ASCs).
The Bundle Exclusion: Similar to the NTAP carve-out, the cost of a pass-through-approved device is excluded from the outpatient episode spending total during retrospective reconciliation.
Commercial Implication: This carve-out is vital for manufacturers transitioning their procedures to outpatient settings. For an analysis of the broader commercial shifts toward outpatient care, see our guide on ambulatory surgery center (ASC) expansion and medical device commercialization.

Exclusions vs. Target Price Adjustments

Sponsors must distinguish between a pure exclusion (where the device cost is completely carved out of the reconciliation) and a target price adjustment.

In some cases, if a hospital uses a new technology that does not have NTAP or pass-through status but is clinically necessary, the hospital must absorb the cost under the existing target price. If the target price was set based on historical years when the technology was not used, the hospital faces direct financial exposure.

5. Commercial Strategies for MedTech Teams Selling Inside Bundled Care

To succeed in an environment dominated by BPCI-Advanced and CJR, medical device manufacturers must shift from product-selling to episode-selling. Commercial and market-access teams must implement three primary strategies:

1. Shift the Value Proposition to Downstream Cost Reduction

Under fee-for-service, manufacturers focused their clinical evidence on what happened in the operating room (e.g., ease of implantation, surgical time). Under bundled payments, the hospital is responsible for the patient for 90 days after they leave the hospital.

Manufacturers must generate clinical and economic evidence showing that their device reduces downstream, post-acute care costs. Post-acute care (including skilled nursing facilities, inpatient rehab, and home health) represents the highest area of spending variability in joint replacement and cardiac episodes.

Example: Total Joint Arthroplasty

If an orthopedic manufacturer can prove that its implant or post-operative monitoring app allows patients to be discharged directly to home health rather than a skilled nursing facility, the hospital saves an average of $3,000 to $5,000 per episode. Even if the manufacturer's implant is priced $500 higher than a competitor's, the technology is highly cost-effective inside the bundle because it yields a net episode savings.

For a strategic framework on building this evidence, see our guide on HEOR and the global value dossier for medical devices.

2. Formulate Bundled Pricing Packages

Hospitals want financial predictability. Manufacturers can align with this need by bundling the primary implant, the disposable accessories, the surgical instruments, and any post-operative digital health tools into a single, fixed-price package.

For capital-intensive systems (such as surgical robots used in joint replacement), manufacturers can offer risk-share leasing models where the capital cost is amortized based on the number of successful procedures performed within the bundle, eliminating upfront financial risk for the hospital.

3. Coordinate with outcomes-based and value-based contracts

To further align incentives, manufacturers can overlay outcomes-based and value-based contracts onto the bundled payment model.

For example, a manufacturer can offer a performance warranty on an orthopedic implant used in a CJR episode: if the patient requires a revision surgery within the 90-day episode window (which would trigger a massive readmission cost for the hospital), the manufacturer rebates the cost of the implant and provides a free replacement. This directly caps the hospital's financial exposure inside the CMS bundle.

Figure 2: Commercial Positioning: Fee-for-Service vs. Bundled Payments

FEE-FOR-SERVICE FRAMING:
[Surgical Implant] ---> [Hospital Cost Center] ---> [Payer Bills Separately]
Focus: Lowest unit acquisition cost.

BUNDLED PAYMENT FRAMING:
[Anchoring Surgery] + [Post-Acute Rehab] + [90-Day Readmission Risk] = Single Target Price
Focus: Total episode cost reduction.
        - Device reduces readmissions (saves $10,000)
        - Device allows direct-to-home discharge (saves $4,000)
        - Net Episode Value: Hospital earns reconciliation bonus.

6. The Next Frontier: CMS Transforming Episode Accountability Model (TEAM)

The bundled-payment landscape is undergoing its largest expansion in a decade. Building on the lessons of CJR and BPCI-Advanced, CMS finalized the Transforming Episode Accountability Model (TEAM) in the FY 2025 Inpatient Prospective Payment System (IPPS) final rule (August 2024). TEAM launched January 1, 2026 and runs for five performance years through December 31, 2030 — making it the active mandatory bundle as of 2026.

Key TEAM Parameters

Unlike the voluntary BPCI-Advanced model, TEAM is mandatory for more than 700 acute-care hospitals in selected Core-Based Statistical Areas (CBSAs) nationwide.

Episode Duration: Each TEAM episode begins with an anchoring surgery and ends 30 days after discharge — a deliberately shorter window than the 90-day episodes in BPCI-Advanced and CJR. CMS shortened the window because its analysis of BPCI-Advanced episodes found that roughly 75% of post-acute episode spending occurs in the first 30 days.
Risk Track: TEAM begins with upside-only risk in 2026 and adds downside (repayment) risk beginning January 1, 2027.
Clinical Scope: TEAM covers five surgical episodes, four of which are device-intensive implant procedures:
1. Lower Extremity Joint Replacement (LEJR): Inheriting the joint-replacement cohort from CJR (inpatient and outpatient).
2. Surgical Hip and Femur Fracture Treatment (SHFFT): Trauma and emergency orthopedic fixation.
3. Spinal Fusion: Lumbar and cervical fusion (inpatient and outpatient) — a category that largely avoided voluntary bundles until now.
4. Coronary Artery Bypass Graft (CABG): Cardiac surgery reliant on prosthetic grafts, valves, and stabilization systems.
5. Major Bowel Procedure: The least device-intensive of the five, driven more by perioperative and complication management.

Strategic Adjustments for MedTech Sponsors

TEAM changes the commercial calculus for manufacturers of orthopedic, spine, and cardiac implants. Because the model is mandatory and now includes spinal fusion, companies that previously avoided bundle pricing pressure must adapt. The 30-day window concentrates risk on preventing immediate surgical complications, surgical site infections (SSIs), and early readmissions, so devices that improve immediate stability, reduce operative time, or lower infection rates (such as antimicrobial envelopes or advanced navigation) carry the strongest within-bundle value proposition.

Looking ahead, CMS is also developing the CJR-Expanded (CJR-X) model, proposed to launch October 1, 2027, which would extend mandatory 90-day LEJR bundles nationally. Manufacturers should treat TEAM and CJR-X as the successor frameworks to BPCI-Advanced and CJR and build economic models showing hospital CFOs how their technology helps the hospital avoid negative reconciliation adjustments under these mandatory models.

FAQ: Bundled Payments and Medical Devices

Is BPCI-Advanced mandatory or voluntary, and does CJR still exist?

BPCI-Advanced is a voluntary alternative payment model, meaning hospitals and physician practices choose whether to participate and select which clinical episodes they want to manage.

The CJR model is a mandatory program for hospitals located in designated metropolitan statistical areas (MSAs). The CJR model was originally scheduled to end but was extended by CMS through subsequent rulemaking, maintaining the mandatory joint-replacement bundle in key regions.

Does the bundle include the cost of the implant?

Yes. The retrospective target price established by CMS covers all Medicare Part A and Part B services provided during the 90-day episode, including the anchoring inpatient hospital stay. The hospital receives a single DRG-based payment for the hospitalization, which must cover all operating room supplies, physician fees, and the cost of the implant itself. The implant cost is not billed separately to Medicare.

Can a new device still get an add-on payment if it is used in a bundle?

Yes, provided the device has been granted New-Technology Add-On Payment (NTAP) status under the IPPS or pass-through payment status under the OPPS. CMS explicitly excludes these add-on payments from the retrospective reconciliation calculations under BPCI-Advanced, ensuring that hospitals are not penalized for utilizing novel, high-cost technologies that demonstrate a substantial clinical improvement.

Sources

CMS BPCI-Advanced Model Page: Centers for Medicare & Medicaid Services. Bundled Payments for Care Improvement Advanced (BPCI Advanced) Model. Available at: CMS Innovation Center BPCI-Advanced.
CMS BPCI-Advanced Participant Announcement: CMS. CMS Announces Participants in New Value-Based Bundled Payment Model. September 2018. Available at: CMS Press Release.
Federal Register CJR Extension Rule: Centers for Medicare & Medicaid Services. Medicare Program: Comprehensive Care for Joint Replacement Model Three-Year Extension and Changes to Episode Definition and Pricing. 86 Federal Register 23496 (May 3, 2021). Available at: Federal Register 2021-09097.
KFF Medicare Bundled Payment Brief: Kaiser Family Foundation (KFF). Medicare Bundled Payment Models: FAQs. Available at: KFF Bundled Payments FAQ.
CMS BPCI-Advanced Fact Sheet: Centers for Medicare & Medicaid Services. BPCI Advanced Voluntary Bundled Payment Model Fact Sheet. Available at: CMS BPCI-Advanced Fact Sheet.
California Hospital Association Compare Table: California Hospital Association (CHA). Comparison Table of Bundled Payment Models (BPCI Advanced, CJR, OCM). Available at: CHA Bundled Payments Compare Table.
CMS TEAM Model Page: Centers for Medicare & Medicaid Services. Transforming Episode Accountability Model (TEAM). Mandatory five-year model (January 1, 2026 – December 31, 2030) covering LEJR, SHFFT, spinal fusion, CABG, and major bowel procedures with 30-day episodes. Available at: CMS TEAM Model.
Milliman TEAM Analysis: Milliman. The next generation of Medicare bundled payments: Considerations regarding TEAM. Available at: Milliman TEAM Considerations.
Medicare NCD vs LCD Guide: MedDeviceGuide. Medicare NCD vs. LCD: Medical Device Coverage Determination Guide. Available at: Medicare NCD vs LCD Coverage Guide.