Paths to Payment Reform

Across the country, there is growing recognition that dramatic changes in healthcare payment systems are needed in order to solve the persistent problems in quality that plague healthcare delivery and to reduce unaffordable costs. Paths to Payment Reform, a new series of policy briefs from the Center for Healthcare Quality and Payment Reform, is designed to explain some of the specific issues which need to be addressed in creating new payment systems and ways to transition to them from current payment structures. The first five briefs are described below.

Is Shared Savings the Way to Reform Payment?

There is growing interest in using "shared savings" as an approach to healthcare payment reform. Medicare has used it as the key element of its Physician Group Practice Demonstration, and it has been proposed as the key mechanism for encouraging the creation of "accountable care organizations."

Unfortunately, there are some fundamental weaknessess in the shared savings approach that make it far less desirable as a payment reform than it might first appear: it doesn't really fix the underlying problems in the payment system; it gives providers risk without resources; it rewards high spenders rather than high performers; it may or may not keep a provider from suffering financial losses; and it's not sustainable as a payment reform.

This policy brief explains the weaknesses in more detail, and describes the right way to share savings as part of an effort to reform healthcare payment systems. Download the Policy Brief.

Which Healthcare Payment System is Best?

There is broad agreement that significant reforms are needed to the Fee-for-Service Payment systems that are commonly used today. The two major healthcare payment systems being discussed as alternatives are Episode Payments and Comprehensive Care Payment (also called condition-adjusted capitation or risk-adjusted global fees).

However, trying to weigh the pros & cons and pick the "best" payment method is a flawed approach - Episode Payments are better for certain kinds of conditions and patients, and Comprehensive Care Payments are better for others. The choice depends on the nature of the cost/quality problems to be solved.

This policy brief outlines two key dimensions of healthcare cost problems, and shows how they are addressed by the two different payment systems. Examples of the kinds of healthcare conditions appropriate for each type of payment system are also defined, including situations in which both can be used jointly. Download the Policy Brief.

Transitioning to Comprehensive Care Payment

One option for improving healthcare quality and controlling costs is to use some form of population-based payment instead of Fee-for-Service payments. There are a variety of different names for this - "Comprehensive Care Payment," "Condition-Adjusted Capitation," or "Risk-Adjusted Global Fee" - but the core element is paying a single price for all of the healthcare services needed by a group of people for a fixed period of time.

However, since Comprehensive Care Payment represents a dramatic change in the way most healthcare providers are paid, it is unclear how many providers could manage under such a payment system. Also, there are concerns about whether Comprehensive Care Payment can work successfully without causing financial difficulties for providers and resistance from patients.

This policy brief outlines six ways that Comprehensive Care Payments need to be structured in order to avoid the problems that traditional capitation payment systems caused. It also defines several potential levels of Partial Comprehensive Care Payments that could help smaller physician practices to transition into this type of payment system. Download the Policy Brief.

Using Medical Homes to Reduce Readmissions

Many people are convinced that the only way to significantly reduce healthcare costs is by some type of rationing, i.e., limiting the kinds of services that Medicare or health insurance will pay for. But there are ways to significantly reduce healthcare spending without taking away anything that consumers want.

A perfect example is hospital readmissions. Research studies and quality-reporting initiatives around the country show that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less, and that many of these readmissions are preventable.

A number of proposals have surfaced for reducing preventable readmissions by reducing or eliminating payments to hospitals when these readmissions occur. The problem with this approach is that it assumes that if a readmission is preventable, it is preventable by the hospital, and that is not always the case.

As outlined in this policy brief, the Patient-Centered Medical Home can help to prevent many readmissions, if it is paid in the right way and focuses on reducing readmissions. Download the Policy Brief.

Transitioning to
Episode-Based Payment

There is growing interest in using episode payments instead of fee-for-service payments as way of improving healthcare quality and controlling costs. An "episode payment" is a single price for all of the services needed by a patient for an entire episode of care (e.g., all of the inpatient and outpatient care they need after having a heart attack). An episode payment system reduces the incentive to overuse unnecessary services within the episode, and gives healthcare providers the flexibility to decide what services should be delivered, rather than being constrained by fee codes and amounts.

The devil is in the details, however: What exactly would be included in an episode payment? And how can healthcare payers and providers transition from the current fee-for-service system to an episode payment structure?

This policy brief describes how to define an episode payment and how to transition to episode payment. Download the Policy Brief.

Setting Payment Levels

Most discussions about healthcare payment reform focus on different methods of paying providers - fee-for-service payments, episode payments, capitation payments, etc. Different payment methods have advantages and disadvantages, but choosing the payment method is only half of the challenge in reforming payment systems. The other half is choosing the right amount of payment. Even if the payment method provides the right incentives, if the payment level is too low (i.e., below the minimum cost of providing care), providers will be unable to provide quality care, and if the payment level is too high, there is no incentive for efficiency.

So how should payment levels (i.e., prices) be set? This policy brief describes the three different methods for setting prices, and some of the advantages and disadvantages of each. Download the Policy Brief.

More policy briefs will be issued in the near future. Comments on the briefs, and suggestions for additional topics, are welcome -- send comments and suggestions to info@chqpr.org.