Restructuring Payment to Improve Quality and Efficiency
Improve Quality and Efficiency
Harold S. Luft, PhD
Harold S. Luft, PhD
Palo Alto Medical Foundation Research Institute
U i
University of California San Francisco
it f C lif i S F
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Payment affects quality, as well as efficiency
• Amounts paid may be inadequate for quality
• Payment structure, however, is more important
This leads us to ask:
• How does one assess the quality of what is purchased?
• How does one value that which does not
h
happen?
?
Classic Fee‐for‐Service
Classic Fee
for Service
• Unit
Unit of transaction is the individual service
of transaction is the individual service
• There are certain expectations regarding the quality of what is provided (i.e., fraud)
• Occasional concerns about whether what was Occasional concerns about whether what was
done was egregiously in error (i.e., malpractice)
• Little focus on whether what was provided was necessary (i.e., caveat emptor)
• But, with third party payment it is unclear who the assessor is
the assessor is
Classic Capitation
Classic Capitation
• The unit of transaction is “a year’s worth of necessary medical care”
y
• The focus is on an undefined package of services
• Implicitly, this requires an assessment of what is I li i l hi
i
f h i
necessary and should be provided
• Risk adjustment is needed for payment to be fair
• But who should assess what the “package” yields B t h h ld
h t th “ k ” i ld
in terms of outcomes and patient satisfaction?
Problems with the Classic Models
Problems with the Classic Models FFS
• Focus is on the inputs
• Providers are only paid for what they do
for what they do
• There is no payment for coordination of care
coordination of care
• Fee schedules are skewed
• There is no natural focus for assessing quality Capitation
• Incentives to avoid risk
• High quality attracts risk
• Risk adjustment is weak
Risk adjustment is weak
• Impossible to capitate i di id l
individual providers
id
• Incentives to do less or to refer to others
• Micro‐management What are the problems
we’re trying to solve?
• Patients do not have the expertise to assess exactly what services they need
y
y
• Capitation needs a way to transfer to providers the incentives plans have for coordination
the incentives plans have for coordination
• FFS (with third party intermediaries) can overly incentivize provider production
• People need insurance, but this is because:
People need insurance but this is because:
– Of occasional very expensive medical care needs
– Chronic illness coverage isn’t available ex post
Four major types of care
j yp
• Major acute and interventional (MA/I) ~47%
– Hospitalization and its equivalents
– Infrequent, expensive, short; managed by teams
• Chronic illness management (CIM) ~24%
– Ongoing outpatient management
g g
p
g
– No clear endpoint, expensive; complex referrals
• Minor acute Minor acute ~25%
25%
– Frequent, relatively low cost
– Primary and at home care; often Primary and at home care; often ‘first
first contact
contact’
• Preventive ~4%
– Sometimes very beneficial, sometimes not
A mixed model for payment
A mixed model for payment
The “occurrence risk” is borne by the plan
The “production
The production risk
risk” is shifted to providers
is shifted to providers
Patients may pay premiums & minor acute care This separates the major risk‐bearing aspects of insurance from low cost, routinely needed care
,
y
• Focus is on “units” the patient can understand
• The patient bears manageable, marginal costs
• Use income
Use income‐based
based subsidies for equity
subsidies for equity
•
•
•
•
Episode payment for Major Acute and Interventional (MA/I) Care
•
•
•
•
•
•
•
Include pre‐admission and some post‐discharge
Payment to a Care Delivery Team (CDT)
(
)
A voluntary organization of a facility and clinicians
Excludes physicians who would order admissions
Episodes are analogous to expanded DRGs (EDRG)
Episodes are analogous to expanded DRGs (EDRG)
Payment includes all services the providers order
Members of the CDT decide their governance and b
f h
d d h
d
how to share the revenue amongst themselves
Setting the payment for an EDRG
Setting the payment for an EDRG
• Avoid externally imposed quality measures
• Instead, incentives for continuous improvement
Instead, incentives for continuous improvement
• Set payment for each EDRG at the average for those CDTs with above‐average
h
C
ih b
outcomes
– Medicare model would use adjusted costs
– Private sector would use negotiated charges
• Until
Until outcome measures are set, assume equality outcome measures are set assume equality
across CDTs
Beyond Lake Wobegone
y
g
•
•
•
•
•
•
Focus on above average outcomes, not processes
g
,
p
Outcomes should be those patients care about
This may mean collecting post‐discharge data
Data from the top half determines the $ amount
Data from the top half determines the $ amount
All CDTs get paid this average figure
Some CDTs will claim they have sicker patients
– They can put forward better risk adjustments
They can put forward better risk adjustments
• Some will want to tout their high quality scores
– They can self‐identify and provide details to support
Incentives to Improve
• EDRGs cover the average cost of those with above average outcomes (no outlier add‐ons)
• CDTs make their money by reducing costs
CDTs make their money by reducing costs
– Collective cost reduction lowers future payments
• CDTs gain business by showing they are “stars”
b
b h
h
“
”
• Business opportunities for consultants to learn pp
best practices and teach to others
• New technologies that are cost reducing and
N t h l i th t
t d i
d
quality constant (or enhancing) will flourish
• CDTs will demand evidence before purchasing
Chronic Illness Management
Chronic Illness Management
Offer yearly CIM payment to primary care groups
Offer
yearly CIM payment to primary care groups
Initially it covers just outpatient care and drugs
Includes specialty care associated with the illness
A small degree of risk sharing may be added for
A small degree of risk‐sharing may be added for MA/I events due to the chronic illness
• Use FFS claims and an agreed‐upon grouper
•
•
•
•
– Deduct from the CIM payments those charges that Deduct from the CIM payments those charges that
group into the chronic illness (after the fact)
• The practice gains if it lowers its overall costs
Th
ti
i if it l
it
ll
t
Adding quality in chronic illness care
Adding quality in chronic illness care
•
•
•
•
Payers can solicit measures of good outcomes
Probably more patient, than clinically, focused
Probably more patient, than clinically, focused
Initially use these data for “star” ratings
Eventually, test to see if better care is more costly
– If so, this may require higher payments and
If so, this may require higher payments and premiums
– If not, then begin to set CIM payments at the average of the payments to the above average PCPs (groups)
of the payments to the above average
PCPs (groups)
• Risk adjustment will again be needed
– But this can follow the lead of the volunteers
The Bottom Line(s)
The Bottom Line(s)
• Bundling
Bundling payment can be a powerful way to payment can be a powerful way to
improve production efficiency
• Measures of quality, however, are critical
• Simply expanding the DRG model won
Simply expanding the DRG model won’tt work
work
– Specialty societies and interest groups will focus on ( b bl
(probably self‐serving) process measures
lf
i )
– Offering higher payments just to those meeting criteria puts pressure on the “cut points”
– That “fix” fails to encourage dynamic improvement
Instead Bundling with Floating Payment
Instead, Bundling with Floating Payment
•
•
•
•
•
•
•
•
Focus on patient‐centric outcome measures
Allow flexibility in the use of inputs
Allow flexibility in the use of inputs
Set payments at the average of the “best”
Cut‐points are of minimal importance
Foster self‐identification
Foster self
identification of of “positive
positive deviants
deviants”
Seek volunteers for the new payment approach
Make data public for multiple assessments
Providers will demand knowledge transfer
Providers will demand knowledge transfer