Putting providers at-risk: How
strong are incentives for
upcoding and undertreating?
Marisa E. Domino, Edward C. Norton,
Gary Cuddeback, Joseph Morrissey
AcademyHealth June 2006
Funding from NIMH and the MacArthur Foundation
gratefully acknowledged
1
Background & Policy Context
 Capitation payments to providers are
common in health care
 Distinction between pure capitation,
applied to a population of users and
non-users and case-rate payments,
applied to users only
2
Background & Policy Context



Case-rate systems, while sharing risk
between agencies/sponsors and health care
providers, change the incentives for
treatment over pure capitation or fee-forservice
Rosenthal (HA 1999; JHE 1999) examined
case-rate payments which did not vary with
patient characteristics such as diagnosis or
severity.
Little is known about the effect of changes
in case-rate payments on provider behavior
3
Research Questions
 Do changes in case-rate, or tier
payments over time affect the tier
assignment for new cases?
 Do changes in tier payments over
time affect the number of services
provided within each tier?
4
The King County Innovation
 On April 1, 1995:
 The State put the county at risk for all
outpatient mental health services
 The County hired UBH on an ASO
contract
 The County passed the risk on to local
providers through the use of capitated
case-rate contracts
5
Data Source
 King County Outpatient Mental health
system
 County outpatient records for individuals
assigned to a tier at some point during
the study period
 First tier assignment for each individual
used for the present analysis (n=8976)
 Focus on period from April 1995 to August
1996
 Tier categories were collapsed in September
1996
6
Changes in Tiered payments April 1995 - August 1996
45
40
Dollars per Day
35
30
1A
1B
2A
2B
3A
3B
25
20
15
10
5
0
Apr-99
May-99
Jun-99
Jul-99
Aug-99
Sep-99
Oct-99
Nov-99
Dec-99
Jan-00
Feb-00
Mar-00
Apr-00
May-00
Jun-00
Jul-00
7
Methods
 Tier assignment model: ordered logit on
the severity assignment (1-6) of those
newly assigned to the case-rate system
(n=8796)
 Second analyses conducted on those with severe
mental illness (n=6605)
 Intensity of service use model: OLS on
number of days per month with services
use within each tier, robust clustered
standard errors
 Key explanatory variable for both models is
the daily tier payment
8
Results

Increases in case-rate payment are associated with:


increases the probability of classifying individuals at higher
severity levels
increases the number of services used in four of the six
severity categories.

A ten dollar increase in the daily case-rate is associated
with between 1.2 and 4.6 more mental health visits per
patient per month

Because those with severe mental illness comprise the
majority of individuals in the tiered system, results were
almost identical for the severely mentally ill
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Limitations
 First year of tier use
 Can’t rule out competing explanations
 Appropriateness of the level of
service use within tiers not assessed
 Daily tier payments may not be as
advertised because of recoupments
and special payment categories
 Some oversight/audits on service use
was conducted
10
Conclusions
 Provider payment mechanisms have
the potential to substantially
influence treatments received
 Assessment of severity by at-risk
providers has the same incentive
problems noted decades earlier in the
Medicare DRG literature
11