Heathcare Payments and Incentives

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Heathcare Payments and Incentives

• Stephen M. Shortell, PhD
• Professor and Dean
• School of Public Health
• UC Berkeley

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• PAYMENT ALTERNATIVES
• Fee-For-Service
• Capitation
• Bundled Payment/Episode-of-Care Based Payment
• Pay for Performance
• Care Coordination Bonuses
• MECHANISMS TO RESPOND
• Accountable Care Organizations (ACOs)
• Patient Centered Medical Homes (PCMH)

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Fee-for-Service

• Each health service is priced and charged
  independently, without necessitating coordination
  between services
• Most common method of paying for healthcare
• May lead to overuse of services, particularly
  those in specialty care or in services that use
  technology whose cost is decreasing
• One possible improvement strategy is to
  recalculate FFS rates to reduce overuse but
  providers would still be paid for doing more in
  terms of quantity rather than of quality

Mechanic and Altman 2009
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Capitation

• Healthcare provider receives a lump sum to
  provide all care for one individual, often
  prospectively
• Challenges with this strategy
• Incentive to provide fewer services, which are
  possibly needed
• Risk adjustment for individual needs may not
  occur

RAND 2009
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Bundled Payments

• Also known as case rates or episode-based
  payments
• Single payment for all services related to a
  specific treatment or a given condition
• Payment may include multiple providers, services,
  settings, and time periods
• Most popular use so far has been with CABG
  (coronary artery bypass graft) surgeries

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Bundled Payments - continued

• The provider assumes risk for cost of care and
  the cost of any preventable complications
• Hospitals/providers have an incentive to reduce
  unnecessary care
• Medicare is now considering expanding to
  End-stage renal disease (ESRD) and common
  diagnosis related groups (DRGs)

RAND Corp. 2009
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Bundled Payments - Evidence

• Medicare Participation Heart Bypass Center
  demonstration in 1990s
• A single negotiated, risk-adjusted amount was
  paid for inpatient bypass patients
• Savings mostly were achieved from nursing,
  pharmacy, and laboratory services

Liu, Subramanian and Cromwell 2007
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Bundled Payments - Evidence

• ProvenCare CABG surgery program at the Geisinger
  Health System.
• One price covers all care related to surgery,
  risk-adjusted based on historical evidence of
  complications
• Covered readmits within 72 hours and related
  services for following 90 days

Casale et al 2007
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Bundled Payments - Evidence

• Geisinger CABG program also includes 40 process
  measures that are based on best practices, and a
  supportive IT system
• Additional component is patient engagement in
  decision-making
• Clinical outcomes have improved length of stay
  is down by 16 and mean costs are down by 5.2

Casale et al 2007
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Bundled Payments - Evidence

• Other projects
• Medicare Cataract Alternative Payment
  demonstration low study participation rates but
  some improvement in efficiency noted
• Texas Heart Institute pricing package for
  cardiovascular surgery sold via contracts to
  employers and health plans (RAND 2009)
• Two year pilot on arthroscopic surgery coverage
  by bundling all related costs for two years
  (Johnson and Becker 1994)

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Bundled Payments - Evidence

• Other projects
• Prometheus Payment initiative
• Developing evidence-informed case rates
• Working groups for cancer, cardiac care,
  depression, diabetes Type 2, knee and hip
  replacements, and chronic conditions (De Brantes
  and Camillus 2007)
• Advantages of bundling extends coverage of
  episodic care beyond DRGs
• Disadvantage bundling could create incentive to
  increase hospital admissions or avoid complicated
  patients (Mechanic and Altman 2009)

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Bundled Payments - Medicare

• In 2007 the Medicare Payment Advisory Commission
  created the following recommendations regarding
  bundling
• CMS should share data on payments per episode by
  provider for comparison purposes
• Payment should be reduced for hospitals with high
  readmission rates for certain conditions, and
  hospitals should be able to reward physicians who
  contribute to Medicare savings
• More pilot programs are needed

Hackbarth et al 2008
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Pay-for-Performance (P4P)

• Providers are rewarded financially for set
  performance on specific medical indicators or
  goals
• P4P programs are widely spread and use a variety
  of incentives and may target individual or group
  providers
• Process or outcome measures may be used
• Financial incentives may be coupled with
  nonfinancial support (OKane 2007)

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Pay-for-Performance (P4P)

• Challenges
• Difficult to know what performance measures to
  use HEDIS, mortality or morbidity rates
• Focused on a subset of performance
• Good for rewarding underused services but does
  not reduce overused services
• May not lead to improved integration and
  coordination without strategies such as IT
  adoption and care management
• Could be part of a blended model combined
  with a global, capitation approach or with a
  bundled, episodic care approach

Mechanic and Altman 2009
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Pay-for-Performance - Evidence

• Little formal evaluation and many methodological
  problems in existing studies
• Most rigorous study of the CMS Premier Hospital
  Quality Initiative Demonstration showed modest
  improvement in treatment versus control groups
  (Mehrota et al 2009)
• No clear consensus on what should be rewarded
  physicians or groups, levels of performance,
  improvements rates
• However, it is recommended that rather than
  rewarding only top performers, P4P target
  high-value care for specific patient groups or
  services (Rosenthal and Dudley 2007)

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Pay-for-Performance - Evidence

• Study of demonstration project at Independent
  Health in New York state
• Individual physicians received bonuses for
  meeting diabetes target measures, as well as
  registry assistance
• Significant improvement was achieved in affected
  groups on blood pressure and lipids (Beaulieu and
  Horrigan 2005)

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An accountable care organization has only two
jobs ?

• To continuously improve the value

of the care it delivers To provide the evidence
(i.e. the data) on the above
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Patient-Centered Medical Home

• Emphasis on continuity and coordination of care
• Care is planned with families, and individuals
  have increased access
• Clinic redesign includes enhanced IT use, quality
  feedback to providers, and decision support tools
• Reimbursement goes beyond FFS and adds a per
  member/per month amount to cover costs of
  coordination and other resources
• Evidence for Medical Homes is based on the
  evidence in support of chronic care management
  (CCM)

Dorr 2008
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Patient-Centered Medical Home

• Review of medical home literature and the impact
  of medical home use on effectiveness, cost and
  quality is all positive, both internationally and
  within-nations
• Four features of the medical home are necessary
  for success 1) A source of first-contact care,
  2) A person-focus on care over time, 3)
  Comprehensiveness of care, and 4) Coordination
  when a patient is sent elsewhere

Starfield and Shi 2004
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Table from Rittenhouse et al 2008
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Table from Rittenhouse et al 2008
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Table from Mechanic Altman 2009
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References (Page 1 of 2)

• Casale AS, Paulus RA, Selna MJ, et al.
  "ProvenCareSM" a provider-driven
  pay-for-performance program for acute episodic
  cardiac surgical care. Ann Surg. Oct
  2007246(4)613-621 discussion 621-613.
• Choe HM, Bernstein SJ, Cooke D, Stutz D,
  Standiford C. Using a Multidisciplinary Team and
  Clinical Redesign to Improve Blood Pressure
  Control in Patients With Diabetes. Quality
  Management in Healthcare. 200817(3)227-233
  210.1097/1001.QMH.0000326727.0000301203.0000326799
  .
• Dorr DA. Oregon Health Sciences
  University.Medical Informatics and Internal
  Medicine.Presentation Overview of the Medical
  Home. Sept 2008. 2008.
• Edmonds C, Hallman GL. CardioVascular Care
  Providers. A pioneer in bundled services, shared
  risk, and single payment. Tex Heart Inst J.
  199522(1)72-76.
• Hackbarth G, Reischauer R, Mutti A. Collective
  accountability for medical care--toward bundled
  Medicare payments. N Engl J Med. Jul 3
  2008359(1)3-5.
• Johnson LL, Becker RL. An alternative health-care
  reimbursement system--application of arthroscopy
  and financial warranty results of a 2-year pilot
  study. Arthroscopy. Aug 199410(4)462-470
  discussion 471-462.
• Liu CF, Subramanian S, Cromwell J. Impact of
  global bundled payments on hospital costs of
  coronary artery bypass grafting. J Health Care
  Finance. Summer 200127(4)39-54.

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References ( Page 2 of 2)

• Mechanic RE, Altman SH. Payment reform options
  episode payment is a good place to start. Health
  Aff (Millwood). Mar-Apr 200928(2)w262-271.
• Mehrotra A, Damberg CL, Sorbero ME, Teleki SS.
  Pay for performance in the hospital setting what
  is the state of the evidence? Am J Med Qual.
  Jan-Feb 200924(1)19-28.
• O'Kane ME. Performance-based measures the early
  results are in. J Manag Care Pharm. Mar 200713(2
  Suppl B)S3-6.
• RAND Corp. Overview of bundled payment options.
  2009. Available online
• http//www.randcompare.org/options/mechanism/bundl
  ed_payment
• Accessed August 2, 2009
• Rittenhouse DR, Casalino LP, Gillies RR, Shortell
  SM, Lau B. Measuring The Medical Home
  Infrastructure In Large Medical Groups. Health
  Aff. September 1, 2008 200827(5)1246-1258.
• Rittenhouse DR, Shortell SM. The Patient-Centered
  Medical Home Will It Stand the Test of Health
  Reform? JAMA. May 20, 2009 2009301(19)2038-2040.
  
• Rosenthal MB, Dudley RA. Pay-for-performance
  will the latest payment trend improve care? JAMA.
  Feb 21 2007297(7)740-744.
• Starfield B, Shi L. The Medical Home, Access to
  Care, and Insurance A Review of Evidence.
  Pediatrics. May 1, 2004 2004113(5)1493-1498.