Professor Michael Chernew: Payment reform, competition and integration

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Professor Michael Chernew: Payment reform, competition and integration

  1. 1. Payment Reform, Competition, and Integration Sept 12, 2011
  2. 2. Health Care MarketsPayers– Public– PrivateProviders– Hospitals– Doctors– Post acute/ long term care providers– Manufactures
  3. 3. Payment Reform
  4. 4. Payment ReformLevel of prices– Price sends signals to firms and consumers– Signal to consumers are distorted by insurance– Mispricing can lead to inefficiencies“Unit” of pricing– How broad are service categories– Unit of pricing is typically a unit meaningful to consumers
  5. 5. Fee-For-ServiceVery micro product definitionsServices do not span providersMedicare physician fee schedule: – 10 office visit codes: 5 levels of complexity x new vs established patients – About 175 codes for CT Body part With or without dye Accompanying test– Adjustments for where procedure is performed In “facility” or notMedicare inpatient fee schedule– Bundled by admission type (DRG)
  6. 6. FFS DistortionsHigh prices: – Encourage over use and over investment – Transfers funds from payers to providersLow prices: – Create access and potentially quality problems – Discourage product innovation – (May encourage process innovation)
  7. 7. FFS Distortions (cont.)Conflicting incentives– No incentive for population health/ chronic disease management– Profits rise with increased use Readmissions
  8. 8. Bundled PaymentDefinition– An aggregated payment, across services and providersMotivation– Improves incentives to coordinate care– Control spending (combines price and quantity)– Definition of a “unit of service” approximates what patients care about
  9. 9. Types of Bundled PaymentGlobal payment– Pay for all care for a defined time periodEpisode– Pay for all care associated with an episode Hip fracture Heart disease Diabetes
  10. 10. Bundled Payment IssuesWho controls the bundled payment– New organization forms are needed: ACOs– Who is residual claimant?Scope– What services are included?– How to define an episode?Risk transfer– reinsuranceRate setting (and updating)Protecting quality– Combine with P4P
  11. 11. Example: Episode Based PaymentPrometheus – Privately developed episode payment system – Payment takes the form of an evidence informed case rate (ECR) – Payment rates set for selected episodes AMI, Hip replacement, diabetes, asthma, etc. 30% of spending – ECR based on estimates of cost of high valued care Adjusted for risk, „unavoidable‟ complication rates – Quality bonus paid based on performance score Source: http://www.rwjf.org/files/research/prometheusmodeljune09.pdf
  12. 12. Example: Global PaymentAQC (BCBS MA)– Risk adjusted global payment (capitation)– Paid to primary care physician‟s group– Updates set contractually for 5 years– Bonus based on performance scoreACOs– Integrated provider groups– Risk adjusted „comprehensive‟ targets set actuarially– Providers „share‟ any savings below target
  13. 13. Bundled Payment SuccessOrganizational ability to manage care andriskComprehensivenessDiscipline in setting rates and updatesPolitical sustainability– Concordance with patient incentives
  14. 14. Integration
  15. 15. Concerns with a Fragmented, SystemInformation flows– Hard to coordinate care across settings– Concerns about discharge planning
  16. 16. Types of IntegrationVertical– Hospitals combine with physicians– PCPs join with specialistsHorizontal– Providers of same type combine Big hospital systems Multispecialty group practices
  17. 17. Integration ConcernsDiseconomies of scale– Motivating workers– Monitoring performance– InnovatingCompetition
  18. 18. Competition(Among providers)
  19. 19. Basic Theory Prices convey signals to producers and consumers Competing firms drive prices to marginal cost Competition spurs innovation Competition forces providers to be customer (patient) centric Search by consumers is crucial
  20. 20. Market Based Prices Insurance distorts demand signal Providers may have market power Prices in the US higher than abroad – Angioplasty almost 2.5 times more expensive – Normal delivery 83% greater – Scanning and imaging consistently higher Measurement is challenging, quality is unobservable, costs hard to measure Too many specialistsSource: International Federation of Health Plans 2010
  21. 21. Mechanisms to Control PricesRegulationCompetitive bidding– Durable medical equipment– Medicare Part DHSAsLeast costly alternative rulesTiered Networks
  22. 22. Integration and CompetitionIntegration could exacerbate pricedistortion– Fewer providers (worry most about horizontal integration)Integration facilitates bundled paymentBundled payment may facilitate search
  23. 23. Will Competing Insurers Control Price (or use)? Positives – Innovative – Must respond to consumers Natural check against poor access and quality Negatives – Lack the market power of the government
  24. 24. Concerns with CompetitionDisparitiesWillingness to accept restrictions onprovider choiceCognitive impairment/ general informationproblemShort time for decision
  25. 25. SummaryFFS pricing is complex and leads toseveral distortions with potential for abuse Moving away from FFS requiresintegration among providers– Integration may have other benefits as wellBut integration raises concerns aboutcompetition and price– Bundled payment may improve search

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