Proposals for Improved Payment Systems
The following is a selection of published and unpublished papers and presentations describing proposals for value-based purchasing systems. If you have papers or presentations that you think should be included here, please email them (or links to them) to us.
Episode-of-Care Payment
Prometheus Payment, Inc. is developing a new system of payment based on what evidence-based medicine defines as appropriate for a patient with a particular condition. The system involves taking the Clinical Practice Guideline for the condition, estimating the cost of delivering the care in the Guideline, and then turning that into an "Evidence-Based Case Rate" to cover all of the care by all of the providers who will be involved with the patient's care. 10-20% of the payment amount is withheld and placed in a performance contingency fund which is paid to providers based on their performance on a multi-factor scorecard. A White Paper describing the plan is available here. A presentation describing the status of planning for the system with examples of how the detailed specifications would be developed is available here.
"Payment Reform," by David W. Plocher, Blue Cross and Blue Shield of Minnesota, PowerPoint Presentation,
January 2007
This presentation outlines the rationale for episode of care payment and describes both the
Prometheus approach and the approach developed by the Oxford Health Plan in 1998.
"Getting the Price Right: Medicare Payment Rates for Cardiovascular
Services," by Kevin J. Hayes, Julian Pettingill, and Jeffrey Stensland, Health Affairs, Vol 26, no. 1, pp. 124-136,
January/February 2007.
"Specialized, physician-owned cardiac hospitals have grown rapidly.
Physicians have also expanded their capability to provide cardiovascular diagnostic services in their
offices. In this paper we consider evidence of errors in Medicare’s prices for hospital care and
physician services and discuss ways to improve the accuracy of those prices. We find that recent
proposals to change the inpatient prospective payment system would help dampen hospitals’ financial
incentives to favor some kinds of patients and related investments. For the physician fee schedule,
we suggest that the Centers for Medicare and Medicaid Services (CMS) review the accuracy of prices
for high-growth diagnostic services."
Physician Payment
"A System in Need of
Change: Restructuring Payment Policies to Support Patient Care," by Neil Kirschner and Robert
Doherty, American College of Physicians, 2006.
This paper describes the recommendations of the American College of Physicians (ACP) for restructuring
the fee-for-service payment system for physicians. ACP recommends that physician practices
that are qualified to serve as an "Advanced Medical Home" (AMH) should be paid through a four-part structure:
(1) A prospective, bundled structural practice component that covers the practice overhead costs linked
to providing AMH services that are not currently paid under the present system; (2) a prospective, bundled
care coordination component that recognizes the work value of physician and nonphysician clinical and
administrative care coordination activities that take place outside of face-to-face visits and that
are not currently paid under the present system; (3) a visit-based fee-for-service component that
recognizes visit-based services that are currently paid under the present system; and (4) a performance-based
component that recognizes achievement of quality and efficiency goals.
"Fundamental Reform of Payment for Adult Primary Care: Comprehensive
Payment for Comprehensive Care," by Allan H. Goroll, Robert A. Berenson, Stephen C. Schoenbaum,
and Laurence B. Gardner, Journal of General Internal Medicine, 2007.
"Primary care is essential to the effective and efficient functioning of health care delivery
systems, yet there is an impending crisis in the field due in part to a dysfunctional payment system.
We present a fundamentally new model of payment for primary care, replacing encounter-based reimbursement
with comprehensive payment for comprehensive care. Unlike former iterations of primary care capitation
(which simply bundled inadequate fee-for-service payments), our comprehensive payment model represents
new investment in adult primary care, with substantial increases in payment over current levels. The
comprehensive payment is directed to practices to include support for the modern systems and teams
essential to the delivery of comprehensive, coordinated care. Income to primary physicians is increased
commensurate with the high level of responsibility expected. To ensure optimal allocation of resources
and the rewarding of desired outcomes, the comprehensive payment is needs/risk adjusted and performance-based.
Our model establishes a new social contract with the primary care community, substantially increasing
payment in return for achieving important societal health system goals, including improved accessibility,
quality, safety, and efficiency. Attainment of these goals should help offset and justify the costs of
the investment. Field tests of this and other new models of payment for primary care are urgently needed."
"Care by the Hour," by Robin Cook, New York Times, August 30, 2006.
This Op-Ed argues that physicians should be paid by the hour, similar to other professions.
Home Health Care Payment
"Beyond Managed Long-Term Care: Paying for Home Care Based on Risk
of Adverse Outcomes," by William Weissert, Michael Chernew, and Richard Hirth, Health Affairs Vol. 20, No. 1,
pp. 172-180, May/June 2001.
"Evaluations of home care for chronically ill elderly people have shown
disappointing results for many years. Improvements in outcomes have been slight and costs high.
We offer a system for setting budget targets based upon effectiveness of home care in mitigating
certain adverse outcomes, the risk of those outcomes occurring, and the economic value of avoiding
those outcomes. We believe that such a budgeting system will encourage improved measurement
of outcomes andmore rigorous justification for expenditures. Moreover, such a system is designed
to reallocate resources to higher-risk patients and those more likely to benefit, focusing caregiving
on specific outcomes and improving those outcomes."
End-of-Life Care Payment
"Redefining
and Reforming Health Care for the Last Years of Life," by Joanne Lynn and David M. Adamson, RAND Corporation,
2006.
"...health care insurers, such as Medicare and the Veterans Health Administration,
should structure payment systems to ensure that patients living with serious, eventually fatal
chronic illness routinely receive comprehensive, coordinated care. In fact, these agencies could
design payment systems that discourage the kind of episodic treatment that made sense 40 years ago
but no longer works best today. Instead, an elderly person with a serious chronic illness should have
a health care team that stays with the patient through the rest of his or her life. That team would
provide symptom management treatment, planning for potential complications, self-care education to
the patient, support services to the family caregivers, and rapid response to the home when needed.
Third, health care organizations and practitioners should measure their service outcomes and use
quality improvement to increase the reliability of care. Finally, family caregivers will need to
mobilize to place pressure on policymakers to enact successful reforms and on health care providers
to make changes."
Also see "Living Well at the End of Life," by Joanne Lynn and David M.
Adamson, RAND Corporation, 2003, and "Sick to Death: Reforming Health Care for the Last Years of
Life," by Joanne Lynn, Palliative Care Policy Center.
Shared Savings Models
"Realigning Incentives in Fee-For-Service Medicare," by Stanley S. Wallack and Christopher P.
Tompkins, Health Affairs 22:4, pp. 59-70, 2003.
"This paper proposes Medicare payment reform
built on the fee-for-service system, with incentive payments to eligible provider organizations
determined by their rate of increase in cost per patient compared to the overall growth rate in the
community. By planning and monitoring how care patterns are altered to achieve greater efficiency,
policy-makers can align the incentives of Medicare and the provider organization better than using
either fee-for-service or capitation alone. This reform, unlike capitation, maintains Medicare’s
historical role as insurer and focuses providers on managing care."
"Gain Sharing: A Good Concept Getting a Bad Name?," by Gail R.
Wilensky, Nicholas Wolter, and Michelle M. Fischer, Health Affairs, 26, no. 1, w58-w67,
December 5, 2006.
"The introduction of diagnosis-related groups (DRGs) created a clear misalignment between the
incentives facing hospitals and those facing physicians. The interest in gain sharing that developed
in the 1990s represented an attempt by physicians to extract and hospitals to offer some of the
savings being produced by physicians. Advisory bulletins by the Office of Inspector General
(Department of Health and Human Services) quickly put a stop to further interest in these strategies.
Newer, narrowly defined types of gain sharing have been under consideration. More broadly defined
strategies that will be tested under a new Centers for Medicare and Medicaid Services demonstration
are more promising."
Bundled Payment and Accountability Systems
"Creating Accountable Care Organizations: The Extended Hospital Medical Staff
," by Elliott S. Fisher, Douglas O. Staiger, Julie P.W. Bynum, and Daniel J. Gottlieb, Health Affairs Vol.
26, no. 1, pp. w44–w57, January/February 2007.
"Many current policies and approaches to performance measurement and payment reform focus on
individual providers; they risk reinforcing the fragmented care and lack of coordination experienced
by patients with serious illness. In this paper we show that Medicare beneficiaries receive most of
their care from relatively coherent local delivery systems comprising physicians and the hospitals
where they work or admit their patients. Efforts to create accountable care organizations at this
level—the extended hospital medical staff—deserve consideration as a potential means of improving the
quality and lowering the cost of care."
"Bundled Medicare Payment for Acute and Postacute Care," by W. Pete
Welch, Health Affairs, Vol 17, Issue 6, pp. 69-81.
"One legislative policy option for controlling postacute care costs is for Medicare to make a
'bundled' payment to hospitals to cover episode costs: acute plus postacute care costs. But a
bundled payment might not match the costs of treatment as well as payment now does under Medicare's
prospective payment system (PPS). Simulating hospital margins with and without postacute care costs,
this paper finds that risks to the typical hospital would not increase under postacute care
bundling. A central characteristic of a bundled payment is that it would cover multiple providers.
From this characteristic comes bundled payment's major strength: cost containment."
"Cost Savings and Physician Responses to Global Bundled Payments for
Medicare Heart Bypass Surgery," by Jerry Cromwell, Debra A. Dayhoff, and Armen H. Thoumaian, Health
Care Financing Review, Vol 9(1), pp. 41-57, Fall 1997.
"In 1991 the Health Care Financing Administration (HCFA) began the Medicare Participating
Heart Bypass Center Demonstration, in which hospitals and physicians are paid a single negotiated
global price for all inpatient care for heart bypass patients. During the first 27 months of the
demonstration, the Government and beneficiaries together saved more than $17 million on bypass surgery
in four participating institutions. Average total cost per case fell in three of the four hospitals
during the 1990-93 period as the alignment of physician and hospital incentives resulted in
physicians changing their practice patterns to shorten stays and reduce costs."
Standardization of Payment Across Payers
"Administrative Simplification for
Medical Group Practices," Medical
Group Management Association, June 2005.
Recommendation #5 calls for establishing a standard
physician fee schedule (and similar uniform fees for services provided by hospitals and other
providers) with uniform base fees paid for a particular CPT code for all insurers. According to the
proposal, such a “singlefee schedule” would not mean that every practice would be paid the same or
that practices would not have the opportunity to differentiate themselves from their competitors.
The paper proposes that a statewide organization could negotiate a single base-fee schedule with
all payers in the state and agree on a standard set of additions to the base fees to reward groups
that meet patient needs. This would eliminate the patchwork of base rates and incentives, varying
by payer, which providers currently face. The paper also calls for standardizing pay for performance
incentives, so that all insurers would make higher payments to practices meeting a common set of
performance incentive measures. Recommendation #6 calls for standardizing clinical guidelines
for common conditions by having plans and local practitioners in a geographic region collaboratively
develop and maintain guidelines, with plans in each market collaboratively financing the effort.
More information is available here.
Payments for Adverse Events
"Redesigning Medicare Inpatient PPS to Adjust Payment for Post-Admission
Complications," by Richard F. Averill, James C. Vertrees, Elizabeth C. McCullough, John S. Hughes, and
Norbert I. Goldfield, Health Care Financing Review, Spring 2006, pp. 83-93.
"Under the Medicare diagnosis-related group (DRG) based inpatient prospective payment system (IPPS),
payments to hospitals can increase when a post-admission complication occurs. This article proposes a
redesign of IPPS that reduces, but does not eliminate, the increase in payment due to post-admission
complications. Using California data that contained a specification of whether each diagnosis was
present at admission, and applying a conservative approach to identifying potentially preventable
complications, the impact of post-admission complications on DRG assignment was determined. Based on
the redesigned IPPS, the increase in Medicare payments due to post-admission complications was reduced
by more than one billion dollars annually."