Redesigning Provider Payment

A recent Health Affairs article explored several options and considerations for converting the current system of provider payments into one where all payments are bundled together for a patient’s entire episode of care.

Health care providers are compensated by several different mechanisms. Physicians may be salaried, participate in a capitated arrangement, or could be compensated on a fee-for-service basis. Hospitals, by and large, are paid prospectively based on diagnosis related groups – a process by which all payments for a patients admitted for a particular diagnosis are the same regardless of the intensity or duration of care required. A prospective payment system such as this imposes a financial risk as well as incentive on hospitals to provide health care that reduces wasted resources and returns patients home (or at least discharges them out of the hospital more quickly. In contrast to a largely fee-or-service retrospective payment system enjoyed by physicians, prospective provider payments discourage providers from increasing the volume of health services.

Three of the major problems in the design of a prospective payment system for physicians include the following:

1. there are many different settings in which a patient may seek care for a particular condition (multiple doctors’ offices, hospitals, rehabilitation centers, etc.),
2. it is unclear whether to focus on single versus multi-conditional illness, and
3. there exists marked heterogeneity within a specific type of care episode.

These authors note that Medicare beneficiaries see a median of seven different physicians and that the typical primary care physician must coordinate care with an average of 229 other physicians who may work in over 100 different practices. Thus, achieving care coordination can be a challenge.

To test the feasibility of using episodes of care as a platform for physician reimbursement (in contrast to the current fee-for-service system), researchers looked at Medicare patients from 3 states and across a spectrum of 9 acute and chronic conditions.  In addition to the above mentioned difficulties in simply defining a care episode, there exists the even more arduous task of assigning responsibility of care amongst the many different physicians (generalists and specialists) that care for an individual patient. Certain provider organizations – such as the multispecialty group practice (common in many academic centers) – are better suited toward assignment of responsibility for a patient’s care from initial doctor visit through hospitalization and follow up care. However, many physicians still practice in solo or small medical practices (fewer than ten providers). How to engage these physicians in a prospective payment system remains an elusive goal.

Commentary

Financial incentives drive the behaviors of people across all occupations. If you pay a plumber by the hour, he may work slowly. If you pay a cab driver based on distance, she may drive a longer route. And if you pay a doctor every time he or she does a procedure or sees a patient in their office, the volume of these medical interventions will increase. Policy makers have toyed with many different payment mechanisms to arrange incentives for physicians to provide high-quality, lower cost care. A current theme now is “episode based care” where reimbursement for physicians is tied to the patient’s entire “episode” of illness. While still in its infancy, plans to promote episode based reimbursement should adhere to several principles:

• Episodes must be defined by discrete medical conditions and not purely arbitrary dividing lines.
• Both primary care physicians and specialists should share in the responsibility for patient care with the focus and therefore greater financial reward going to physicians coordinating care.
• The complexity of care should be considered for patients with multiple medical problems.
• Episode-based payment is better for acute conditions while pay-for-performance is better suited toward chronic conditions.
• Patients should be able to identify a single physician as their primary doctor; that relationship must be paramount.

Health Affairs. 2009. 28(5):1406–17.

by

Cedric K. Dark, MD, MPH