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Professor Michael Chernew: Payment reform, competition and integration
1) Payment reform is needed to address distortions created by fee-for-service payments, such as overuse and misaligned incentives, but moving away from FFS requires greater integration among providers which could reduce competition. 2) Bundled payments that cover broader "units of service" could help coordinate care better while also improving consumers' ability to search and compare costs. 3) While competition is important to control healthcare costs, the US healthcare market has challenges such as a lack of price transparency, provider market power, and consumers having difficulty making informed choices in a complex system.
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Professor Michael Chernew: Payment reform, competition and integration
- 1. Payment Reform, Competition, and Integration Sept 12, 2011
- 2. Health Care Markets Payers –Public – Private Providers – Hospitals – Doctors – Post acute/ long term care providers – Manufactures
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- 4. Payment Reform Level ofprices – 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. Fee-For-Service Very micro productdefinitions Services do not span providers Medicare 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 not Medicare inpatient fee schedule – Bundled by admission type (DRG)
- 6. FFS Distortions High prices: – Encourage over use and over investment – Transfers funds from payers to providers Low prices: – Create access and potentially quality problems – Discourage product innovation – (May encourage process innovation)
- 7. FFS Distortions (cont.) Conflictingincentives – No incentive for population health/ chronic disease management – Profits rise with increased use Readmissions
- 8. Bundled Payment Definition – Anaggregated payment, across services and providers Motivation – Improves incentives to coordinate care – Control spending (combines price and quantity) – Definition of a “unit of service” approximates what patients care about
- 9. Types of BundledPayment Global payment – Pay for all care for a defined time period Episode – Pay for all care associated with an episode Hip fracture Heart disease Diabetes
- 10. Bundled Payment Issues Whocontrols 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 – reinsurance Rate setting (and updating) Protecting quality – Combine with P4P
- 11. Example: Episode BasedPayment Prometheus – 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. Example: Global Payment AQC(BCBS MA) – Risk adjusted global payment (capitation) – Paid to primary care physician‟s group – Updates set contractually for 5 years – Bonus based on performance score ACOs – Integrated provider groups – Risk adjusted „comprehensive‟ targets set actuarially – Providers „share‟ any savings below target
- 13. Bundled Payment Success Organizationalability to manage care and risk Comprehensiveness Discipline in setting rates and updates Political sustainability – Concordance with patient incentives
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- 15. Concerns with aFragmented, System Information flows – Hard to coordinate care across settings – Concerns about discharge planning
- 16. Types of Integration Vertical –Hospitals combine with physicians – PCPs join with specialists Horizontal – Providers of same type combine Big hospital systems Multispecialty group practices
- 17. Integration Concerns Diseconomies ofscale – Motivating workers – Monitoring performance – Innovating Competition
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- 19. Basic Theory Pricesconvey 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. 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 specialists Source: International Federation of Health Plans 2010
- 21. Mechanisms to ControlPrices Regulation Competitive bidding – Durable medical equipment – Medicare Part D HSAs Least costly alternative rules Tiered Networks
- 22. Integration and Competition Integrationcould exacerbate price distortion – Fewer providers (worry most about horizontal integration) Integration facilitates bundled payment Bundled payment may facilitate search
- 23. Will Competing InsurersControl 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. Concerns with Competition Disparities Willingnessto accept restrictions on provider choice Cognitive impairment/ general information problem Short time for decision
- 25. Summary FFS pricing iscomplex and leads to several distortions with potential for abuse Moving away from FFS requires integration among providers – Integration may have other benefits as well But integration raises concerns about competition and price – Bundled payment may improve search