6 Payment Reforms to Support Accountable Acute Care

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September 14th, 2012
Categories: Healthcare Reform

Many of the the cost and quality problems present in the US healthcare system are either shaped or worsened by the way healthcare services are paid for. Below are six payment reforms with the potential to alleviate these issues, some of which have already been implemented in one form or the other by payers both public and private. This list of reforms and their explanations is no way a comprehensive accounting of all of the complexities and challenges associated with each reform. Instead, it provides a brief overview of widely discussed ways in which to better the healthcare system via payment reforms. Additional points to be considered for all of these reforms include:

  • The establishment of payment levels for both individual patients and patient populations.
  • Limiting the financial risk created by the reforms and beyond the control of providers
  • Ensuring that the quality of care to patients is maintained or improved as incentives to control costs are introduced
  • Establishment of IT infrastructures to support reforms

 1. Paying Hospitals on a Case Rate Basis for All Patients

Paying hospitals on a “case rate” basis (such as the DRG system) for all patients could reduce administrative expenses for both payer and hospital as well as create more consistent incentives across a hospital’s entire patient population. By receiving a single payment for an inpatient stay, hospitals will have a strong incentive to be more prudent in their use of resources. As with other reforms to the payment system, it is imperative to provide hospitals with benchmarks and incentives for quality outcomes in combination with the case rate payment system. Utilizing this system for all patients ensures that a hospital will not simply shift costs to other payers not using a case rate rather than reducing costs to stay within the case rate payment level. This cost shifting is prevalent in hospitals in order to accommodate the Medicare DRG system.

2. Paying All Physicians On A Case Rate Basis For Acute Care Episodes

Expanding the case rate approach to all physicians (rather than only surgeons and obstetricians) by providing a single payment amount for a patients‘ treatment can have advantages for both the physician and the payer. Moving away from the current fee-for-service system, this approach creates an incentive to eliminate unnecessary services and also allows the physician to customize their services to the needs of the patient without regard to the financial impact of delivering fewer services. It can also provide greater revenue stability for physicians and reduce the administrative burden of having to bill for each individual service provided.

3. Bundling Payments to Hospitals and Physicians

Bundling payments made to the hospital and physician and covering all services provided to a patient may have various positive affects on cost and quality. These include:

  • Incentivizes physicians to help find ways to lower the hospital’s cost.  Being that hospital expenses may affect their own revenue, physicians may be more proactive in trying to reduce excessive hospital stays and use of resources.
  • Provides an incentive for multiple physicians to better coordinate their activities.
  • Provides much needed price transparency/stability to patients and payers by standardizing the cost of treatment regardless of how many physicians were involved in a patient’s care or length of stay.

4. Providing an Inpatient Warranty

Under the current payment system, hospitals and physicians are paid extra to deal with avoidable complications (infections, medication errors, etc.) that they themselves caused.  This payment structure has the inadvertent effect of financially penalizing hospitals and physicians for efforts to prevent complications and infections. One solution to this problem is offering a “limited warranty” with a commitment from both the hospital and physician that they will not charge more for treating avoidable complications that occur during a patient’s treatment. Some of the key points that need to be determined by the parties offering the warranty include: 1) the extent to which they believe they can reduce complications, 2) how broad the warranty should be, 3) how much to charge for it.

5. Bundling Payments for Inpatient and Post-Acute Care

Providers unrelated to the hospital or physician are frequently responsible for delivering post-acute care service for patients. This often results in a lack of coordination amongst the providers involved in a patients’ treatment and a fragmentation of payment that can result in overuse or underuse of post-acute care services. Similar to other bundling approaches, bundling payments for inpatient and post-discharge services may provide a solution to this problem by providing a single payment effort to increase coordination and better control the use of services.

6. Providing a Warranty For Post-Discharge Complications and Readmissions

Similar in concept to the inpatient warranty described previously in this post, a warranty covering preventable post-discharge complications and readmissions would incentivize hospitals to reduce the rate of readmissions. Having the services of both the hospital and those providing the post-discharge care is highly desirable with this approach because readmissions can be affected both by care in the hospital and care provided after discharge.