News Room
Episode-Based Payments: Charting a Course
for Health Care Payment Reform
Policy Analysis Expores Key Considerations in Moving Away
from Fee-for-Service Payment
WASHINGTON, D.C.As consensus grows that
true reform of the U.S. health care system requires a move away
from fee-for-service payments, designing alternative payment methods,
including episode-based payments, has emerged as a high priority
for policy makers, according to a new Policy Analysis from the
National Institute for Health Care Reform.
Written by researchers at the Center for Studying Health
System Change (HSC) and Mathematica Policy Research, the analysis
identifies key policy considerations involved in designing and
implementing an episode-based payment system that would essentially
bundle payment for some or all services delivered to a patient
for an episode of care for a specific condition over a defined
period.
For example, a typical episode might focus on a heart attack,
beginning with the onset of a patient's chest pain, continuing
with urgent care by a physician or emergency services provider,
followed by hospitalization services and any procedures performed,
and lastly post-acute and rehabilitation services during a recovery
stage. For chronic conditions, such as congestive heart failure,
an episode could be defined as a period—a month or a year—of management
of the condition, including physician services, the services of
other personnel and, in some cases, hospital stays.
Ideally, a well-designed episode-based payment system would
encourage providers to improve efficiency and quality of care,
according to the analysis. Careful consideration of how to design
and implement episode-based payments, however, will set the stage
for success or failure. Key policy considerations include:
- how to define episodes of care;
- how to establish episode-based payment rates;
- how to identify which providers should receive episode-based
payments;
- how to ensure compatibility with other proposed payment
reforms; and
- how to stage implementation to focus on a narrow set of
priority conditions, patients and providers.
Written by HSC's Hoangmai H. Pham, M.D., M.P.H.; and Paul B.
Ginsburg, Ph.D.; and Mathematica's Timothy K. Lake, Ph.D.; and
Myles M. Maxfield, Ph.D.; the new Policy Analysis—Episode-Based
Payments: Charting a Course for Health Care Payment Reform—is
available
here.
Although the broader health reform debate has sidestepped in-depth discussion
of provider payment reform, most health policy experts agree that
fee-for-service payments contribute to the overuse of well-reimbursed
services and the underuse of less-lucrative services; a medical
culture that places little value on such activities as care coordination
that are not explicitly reimbursed; and a fragmented delivery
system that patients and providers find increasingly difficult
to navigate.
At the other end of the spectrum, capitated payments-fixed per-enrollee,
per-month payments-provide strong incentives for care coordination
to maximize efficiency and could motivate quality improvement
if accompanied by quality-based bonuses. However, full capitation,
where the provider is at risk for all care required by a group
of patients, exposes providers to financial risk that few are
capable of managing well given current market and practice structures.
Moreover, while fee-for-service payment raises concerns about
incentives for providers to deliver unnecessary care, full capitation
raises the opposite concern-that providers might withhold needed
services to maximize profits.
In today's fragmented delivery system and payment environment,
individual providers have little financial incentive to step out
of their silos to coordinate care across a patient's conditions
and care settings and limited ability to influence other providers'
behavior. The quandary for policy makers is how to motivate providers
to reconfigure their practice arrangements and care processes
to produce more efficient and coordinated care without setting
many of them up for failure with a rapid transition to full capitation.
Between the two extremes of fee-for-service and capitation lie
intermediate models, such as episode-based payments, which pay
providers based on a set of related services delivered to a given
patient.
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The National Institute for Health Care Reform contracts with the Washington, D.C.-based Center for Studying Health System Change to conduct high-quality, objective research and policy analyses of the organization, financing and delivery of health care in the United States. The nonprofit, nonpartisan Institute was created by the International Union, UAW; Chrysler Group LLC; Ford Motor Company; and General Motors to help inform policy makers and other decision-makers about options to expand access to high-quality, affordable health care to all Americans.
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The Center for Studying Health System Change is a nonpartisan policy research organization committed to providing objective and timely research on the nation's changing health system to help inform policy makers and contribute to better health care policy. HSC, based in Washington, D.C., is funded in part by the Robert Wood Johnson Foundation and is affiliated with Mathematica Policy Research.
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