Beyond Fee for Service: Reimbursement for Episodes-of-Care

I have been critical in past notes about the fee-for-service reimbursement method that underlies our current healthcare system. I have also made occasional reference to an alternative system based on bundles or episodes of care. A recent blog note explains this latter approach to reimbursement (see: Beyond Fee-for-Service: Paying Doctors for ‘Episodes of Care’), Below is an excerpt from it with boldface emphasis mine:

When you pay doctors for every procedure they do, there’s an incentive for unnecessary treatments. There’s a financial reward for fixing problems that better care might have prevented. And there’s no incentive for doctors to prevent complications. On the other hand, few people want to go back to capitation — paying a single, annual fee for all of a patient’s care. That’s been criticized for leading to undertreatment. So a lot of powerful people are looking toward a middle road: Paying a single, bundled fee for an “episode of care” such as a hip implant or a few months of treatment for cancer or a chronic disease....Medicare’s piloting a program that pays a lump-sum to be split by the hospital and physicians for acute-care procedures like coronary bypass....[P]oorly designed bundles could encourage cherry-picking healthy patients or denying needed care. But beyond Medicare, several experiments are looking at different ways of bundling payments Later this year, UnitedHealth plans to test bundled payments for oncologists....UnitedHealth wants to pay a single, bundled fee for a few months of cancer treatment. The fee would be worth about what docs make now from fees and from profit on the drugs....And Minnesota is making its own big push into bundles or baskets. A big health-reform law that the state passed last year will create “baskets of care” for several conditions, including asthma and diabetes. The basic idea is for hospitals and doctors to define and price a package of care, so that patients and payers can see what they’re getting and comparison shop between providers

As noted in this note, fee-for-service tends to reward unnecessary medical treatment and procedures. This is both wasteful and potentially harmful because of the risks associated with unnecessary treatment. Conversely, paying a capitated fee to a physicians for the total yearly care of a patient, as occurs in the National Health Service in the UK, can lead to underutilization of services. By way of contrast, paying a fee for both an operation such as hip replacement and the subsequent post-operative care provides an incentive for close attention to both. The same reasoning applies to various medical conditions such as with malignant neoplasms, diabetes, and asthma.

Here's an excerpt from a document (see: Minnesota Health Reform Initiative: Baskets of Care - Frequently Asked Questions) describing the Minnesota "baskets-of-care" reform initiative:

The purpose of baskets of care are to uniformly define a scope and set of care components for a given condition, procedure, or episode of care. A general objective of the baskets of care concept is to encourage providers, payers, and consumers to think differently about health care service delivery. While the health care system currently pays for services on a per-service basis, baskets of care are intended to offer health care providers an incentive to be innovative in providing a given package of services in a way that supports effective, high quality, lower-cost care. In addition to incentivizing innovation in the organization and delivery of those services, the uniform basket of care definitions will work towards the development of community standards and tools of comparability that are easily understood and accessible for consumers.

Obviously, the "devil is in the details" when defining exactly what constitutes a basket-of-care as the basis for reimbursement. As noted above, hospitals executives will have an incentive under such plans to offer operations or diseases with the fewer possible post-operative complications or cherry-pick the healthiest patients. However, in our competitive system and as noted above, the providers will develop their plans and patients and payers will have the option of choosing the best on the basis of cost and quality.

Going beyond the reimbursement aspect of this discussion, one of the most compelling arguments for implementing a baskets-of-care reimbursement system, as noted above, is the potential for the "development of community standards and tools of comparability [for diseases and operations] that are easily understood and accessible for consumers." My concern is that, despite such an admirable goal, the final descriptions and definitions of these baskets-of-care will not be understandable for consumers. Health insurance companies and hospital execs commonly speak a language of their own that is far beyond the understanding of the rest of the population. This problem can possibly be remedied by requiring a simple consumer-oriented summary of each of them.

Comments

[bev M.D.]

This idea seems to resemble that in Michael Porter's book "Redefining Health Care". I have thought for some time that a "shotgun marriage" between hospitals and physicians is the only way to get costs under control. The thought of the vicious battles over the pie slices that will ensue, however, makes me wince. Hopefully, representative bodies from each side can set out guidelines on a national basis that will prevent this battle from being replayed in every hospital in the U.S.