Transcript Health Financing Revisited

Provider Payment
Systems
Senior Policy Seminar
Bangkok, Thailand
February 28 – March 1, 2007
George Schieber
Health Policy Advisor
Human Development Network
Key Messages
1. There is no ‘right’ method
2. Provider payment systems must be tailored to
the institutional realities of each system
encompassing both the demand and supply
sides
3. Policy-makers need to be concerned about
effects across different provider types, different
payors (i.e., public, private HI, OOP) as well as
overall health spending
4. Policy-makers must monitor the effects of
alternative provider payment systems on cost,
access, and quality – MIS is critical
Thailand Financing System
Source: Tangcharoensathein and Pitayarangsarit, 2003, Wibulpolprasert, 2007.
Provider Payment in UC
Source: Jongudomsuk
Organization of Presentation
•
•
•
•
Definition, importance, and goals
What do we mean by efficiency?
Where do we start – National Health Accounts?
Some observations from a big spender -- the
United States
• Development of payment systems --physicians,
hospitals, managed care, pharmaceuticals
• Implementation issues
• Annex – Case mix based hospital payments
Definitions, Importance, and
Goals of Provider Payment
Systems
Objectives of Health Reform
•
•
•
•
Improve health status of population
Enhance equity and access
Assure financial protection
Increase macroeconomic and
microeconomic efficiency
• Strengthen clinical effectiveness
• Improve quality of care and consumer
satisfaction
Assumptions of a Perfect Market
•
•
•
•
•
•
Perfect information
Free entry and exit
Homogenous product
Independence of consumers and producers
No public or merit goods
Large numbers of consumer and producers - each
with no power of price
Why Public Intervention?
• Health services with collective benefits
(public versus personal health services);
• Redistribution/Equity;
• Health insurance market failures; and
• Other market failures in the direct consumption
and provision of health services.
Provider Payment Defined
• Mechanisms used to ‘pay’ medical care
providers/organizations for services rendered to
their clients
• Developing, testing, and implementing new
methods to pay medical care providers (e.g,
global budgets, capitation, DRGs, etc.) including
MIS and QA systems
• Implementing new systems in which:
– money follows patients
– finance is separated from provision
– payment systems contain incentives for access,
efficiency, and quality for public and private providers
The ‘New’ Focus – P4P – Pay for
Performance
• “Realigning payment incentive in health care to
encourage higher quality and more efficient care”
(Epstein, NEJM, Feb,2007)
• “Transfer of money or material goods conditioned on
taking measurable actions or achieving a predetermined
performance target” (Eichler, CDG, 2006)
• In 2005 U.S. Congress mandated that CMS put develop
a P4P program for Medicare
• British have implemented P4P with FPs
• Is this anything really new or does it just more directly
address the tradeoffs between cost, quality, and access?
• Can be applied at system wide to individual
organizational levels
Basic Principles of P4P
•
•
•
•
•
•
•
•
•
•
•
Increase efficiency in the provision of existing levels of
activity
Where needed, encourage expansion of activity
Enhance patient choice
Increase patient satisfaction
Encourage providers to be responsive to patient and
commissioner preferences
Keep costs under control
Channel funding where it is most needed
Introduce fairness and transparency in funding providers
Encourage the development of new, cost-effective
treatment pathways
Shift patterns of service provision away from historical
patterns
Improve quality
Source: Moraldo, Goddard, and Smith, York CHE Research Paper 19, 2006. Authors use the term PbR – pay by results
Some Basic Measures for Family
Physicians
• Utilization and cost management - avg number
of emergency dept visits per patient per year
• Clinical quality/effectiveness – % of asthma
patients on controlled medications
• Patient satisfaction -- % of patients who would
recommend their physician to a friend/relative
• Administrative – practices level of information
technology
• Patient safety -- % of patients questioned about
allergic drug reactions
Source: Millenson, NEJM, Feb, 2007.
Focus on HNP results (outcomes/outputs) –
Paying for results in Argentina
•
•
ARGENTINA – Output-based Lending
Trazadora Results (Apgar Score)
in three of the 9 poorest provinces
Project focuses on 10 health outcome/output
targets (Trazadores) that are known to have
an impact on infant and maternal mortality in
the 9 poorest provinces of Argentina.
Project pays for performance (e.g., healthy
newborns) and NOT for inputs (e.g., supplies,
equipment, infrastructure, personnel, drugs,
vaccines)
Project strengthens health system, including
M&E, from within implementation
arrangements rather than as an imposed
covenant.
70
60
Percent of births
•
50
40
30
20
10
0
Catamarca
•
Chaco
Tucuman
Introduction of politically difficult changes
possible
First Target (Jun-Aug 05)
Second Actual
Fourth Target (May-Aug 06)
First Actual
Third Target (Jan-Apr 06)
Fourth Actual
Second Target (Sep-Dec 05)
Third Actual
Proportion of eligible births with Apgar score > 6 at minute 5,
by province and quarterly targets, May 2005 – August 2006
Source: Argentina Provincial MCH Project
Source: VHA
Provider Payment Systems are One of
Many Tools to Control Costs
•
•
•
•
•
•
•
Cost sharing requirements
Consumer and purchaser information
Vouchers
Supply restrictions
Increase medical appropriateness of care
Utilization management and review
Coordination of care among different providers through
financial and non-financial mechanisms
• Efficient provider payment methods
• All payer systems
• Expenditure targets and limits
Provider Incentives Always Matter
• “The small pox so fatal and so general amongst us is here
entirely harmless by the invention of engrafting.
• I am patriotic enough to take pains to bring this useful
invention into fashion in England; and I should not fail to
write to some of our doctors very particularly about it, if I
knew any of them that I thought had virtue enough to
destroy such a considerable branch of revenue for the
good of mankind. But that distemper is too beneficial to
them, …. ”
Source: Lady Mary Wortley Montague, Letter 31, Adrianople, Ottoman Empire, April 1, 1717
Provider Payment and Health Systems
Health services delivery framework
Non-Health
Sectors
Organization of
Health Services
Education
Water
Agriculture
Transport
Power
Health Service
Outputs
(Level/Spread)
Utilization
Coverage
Quality
Efficiency
PROVIDERS
Management systems
Performance Management;
Human Resources; Financial
Management; Information
Systems; Logistics: Drugs &
Technology, Buildings, Auxiliary
Services
External
Development
Partners
Political
Environment
Social
Conditions
Economic
Factors
Physical
Environment
G
O
V
E
R
N
M
E
N
T
Purpose
COMMUNITY
Leadership
Strategic
direction;
Values
Oversight
&
Compacts
Financing
Information
Revenue;
Pooling;
Allocation;
Payment
Performance;
Disclosure;
Research
Political
Voice
Source: David Peters, World Bank 2006
PEOPLE
Client
Power
Poor /
Non-Poor
(Level/Spread)
Health status
Financial
protection
Trust in health
system
What Do We Mean by
Efficiency
Efficiency Defined
• Efficiency of financing base -- the economic
costs resulting from changes in the production
and consumption behavior of firms and
households as a result of taxes and other
revenue raising efforts
• Allocative efficiency – “doing the right things” -purchasing the most cost-effective mix of
outcomes
• Technical efficiency -- “doing things right” –
producing a specific health outcome,
intervention or service at lowest cost
Demand and Supply Side Approaches
for Improving Efficiency of Service Use
Supply side approaches
Demand side approaches
Indirect mechanisms
•
Changing behavior via reimbursement mechanism
•
Changing market structure and behavior by
changing overall ownership (e.g., privatization of
hospitals and facilities)
•
Using global budgets, possibly in combination with
other efficiency targets (e.g., staffing)
Indirect mechanisms
•
Employing payment incentives to encourage
treatment of patients in primary or ambulatory care
•
Introducing user charges and co-payments
Changing care delivery
•
Adopting treatment protocols
•
Introducing performance management (e.g., setting
targets for length of stay, promoting day surgery)
•
Implementing business process reengineering
•
Adapting cost-reduction and efficiency targets
Planning approaches
•
Implementing hospital closure and reconfiguration
programs
Demand management
•
Initiating an appropriateness and utilization review
•
Introducing “evidence-based purchasing”,
specifying explicit rationing of treatments, specifying
a basic package of interventions
•
Developing primary care substitutes
•
Promoting social and domiciliary care
•
Strengthening disease prevention activities
•
Adopting managed care or disease management
Source: M. Henscher
Factors Affecting Feasibility of Efficiency Improvements
Source: Hensher, CMH
Expenditure = Income
H
O
U
S
E
H
O
L
D
S
General
taxation
social
‘insurance’
private
insurance
capitation
payments
HEALTHCARE
BUDGET
fee per item
of service
salaries
user charges/
copayments
P
R
O
V
I
D
E
R
S
from Reinhardt 1984
Flows of Funds to Medical Care Providers
PUBLIC AND PRIVATE
‘INSURANCE’ PROGRAMS
PAYMENTS FOR SERVICES
DIRECT PROVIDER
REIMBURSEMENT
APPROACHES AND
CONTRACT ARRANGEMENTS
PROVIDERS
OF CARE
INDEMNITY
MODEL
METHOD, UNIT, AND LEVEL
OF PAYMENT HAVE INCENTIVES
FOR PROVIDERS THAT AFFECT:
PATIENTS
TYPE, NUMBER AND QUALITY
OF SERVICES PROVIDED
FLOW OF SERVICES
Incentives To Providers
Depend On How They Are Paid
•
•
Unit of payment:
– individual service
– per visit/encounter
– per day
– per admission
– per episode of illness
– all (or a defined set of services) for a provider for a fixed period of time (i.e.,
salary or global budget)
– all (or a defined set of) services for an individual for a fixed period of time (i.e. full
or partial capitation)
Level of payment
– providers costs
– providers charges
– administratively set by payor
– negotiated
– competitive bidding
Need To Monitor
• Costs
• Quality
• Access
• Impacts across different provider types
• Impacts across all public and private payors
including those paying out of pocket
Difficult to Control Spending Without a
Single Set of Payment Rules
DELIVERY
SYSTEM
PUBLIC FACILITIES
AND PHYSICIANS
PRIVATE FACILITIES
AND PHYSICIANS
BUDGET
FEE SCHEDULES
CHARGES
SOURCES OF
INSURANCE
COVERAGE
PUBLIC
PRIVATE
UNINSURED
Where Do We Start –
National Health Accounts
Table 1: National Health Expenditures Aggregate and Per Capita Amounts, Percent
Distribution, and Average Annual Percent Growth, by Source of Funds: Selected
Calendar Years 1960-2004
Table 2: National Health Expenditures Aggregate Amounts and Average Annual
Percent Change, by Type of Expenditure: Selected Calendar Years 1960-2004
Table 3: Personal Health Care Expenditures Aggregate and Per Capita Amounts
and Percent Distribution, by Source of Funds: Selected Calendar Years 1970-2004
Source: VHA
Observations From a Big
Spender – The United States
Health System
in USA
Hospitals &
Doctors
GOVERNMENT
Emergency
Room
INSURANCE COMPANIES
Medicare
Employer Chooses
Medicaid
Employers
No
care
Benefits Dept.
Elderly
Poor
Insured through employer
Self-insured
Uninsured
Observations from the United States
• Doctors are the major problem -professional model of autonomy, independent
businessman, acute care/biological focus
• Consumers are a close second -- myths,
choice, lack information
• Payment system is regressive and inflationary
• IT/Telecom is required to practice 21st
century medicine – information volume,
knowledge, decision support,
communications
• We know what works clinically…at least
enough to get a good start
David Lawrence, 2003
Observations From the United States
• Reform/transformation must come from outside the
system – entrenched interests block reforms
• Health care workers and unions (where exist) can be
allies – resist hierarchy, critical perspectives on care,
work in teams
• Leadership and Management are crucial – medical
groups, teams, organizations, but ‘how to’ limited
• Uninsured/underinsured get care that everyone pays
for – too late, inflationary, costs shifted, unethical
• Insurance competition is destructive to health delivery
system reform – compete on risk
David Lawrence, 2003
Observations From the United States
• Consumer co-pays affect utilization -- wrong
structures mean wrong care (too little, too
late, too much, too soon);
• Slow -- it took over a century to get to where
we are now
• The stakes are very high -- deaths from
avoidable errors (exceed Viet Nam, Korean,
and two Gulf Wars >150,000/year (injured are
5-10 times that number); estimated 30%-50%
of current spending either buys no
improvement in health or causes harm or
death (the cost of poor quality)
David Lawrence, 2003
Development of Payment
Systems --Physicians,
Hospitals, Pharmaceuticals
Paying Physicians
•
•
•
•
Fee for service
Salary
Capitation
Combination methods (e.g., salaries with
incentive bonuses, fee for service with
individual physician and/or aggregate
physician expenditure limits)
Fee For Service
• Doctor receives a fee for each
intervention/service provided
• Can be paid directly by the patient or by a third
party payer (insurer or government)
• Definition and composition of the service bundle
(e.g., CPT 4, DRGs) is critical
• Fee schedules are prospectively determined
Fee For Service Incentives
• Health care providers can influence patients’
demand for health care, for providers’ own self
interest
• Physicians concerned about patient’s health and
own income
• Strong incentives to provide services
• Strong incentives for over-treatment
Fee For Service Incentives
• May inflate prices and quantities unless there is some
overall limit on spending
• Increases quantity of activity
• Effects on access and quality depend on fee levels
• Can be used efficiently if targeted to increase
interventions of proven cost-effectiveness
• If relative fee levels don’t reflect real resource costs,
fee schedule will lead to inefficiency (e.g., if surgery is
over-valued relative to office visits, physicians will do
more surgery and less visits)
Salary
• Doctors are paid a fixed amount for a certain
amount of their time
• Salary can be set in any number of ways
including negotiations between professional
associations and health care funders (e.g.,
government or insurers)
• Salaries can vary according to age, experience,
speciality, setting, and responsibilities of the
doctor
Salary Incentives
• Incentives to under-treat
• May be incentives to provide services that are
not the most cost-effective
• Incentives to shift costs to other providers to
minimize work effort
• Need to monitor performance
Salary Incentives
• Controls individual physician’s costs
• Need to monitor access and quality
• Need to monitor referral patterns including selfreferrals of patients by publicly employed
physicians to their private clinics
Capitation
• A method of payment for a specified range of health
services in which a managed care organization,
physician or hospital is paid a fixed amount of money for
each enrollee per period of time, regardless of the actual
number of services provided to each person
• Can have full (e.g., responsible financially for all of the
patient’s service needs) or partial (a subset of services
such as primary care [i.e., primary care capitation], all
physician care, lab tests, etc.)
• Financial risks are transferred to the capitated entity
(sometimes referred to as supply side cost-sharing)
Capitation Incentives
• Incentives heavily influenced by services included in
the capitated bundle
• Incentives to shift costs to providers of services that
are not included in the bundle
• Incentives to prevent ill-health so patient doesn’t
come back for additional treatment
• No incentives to over-treat
• Incentives to under-treat, subject to attracting and
retaining patients as well as not having to deal with
even more expensive illnesses at a later date
• Incentives to get rid of sicker than average patients
• Effects on access, quality, and innovation ambiguous
Payment Mechanisms for Physicians,
Financial Risk and Incentives
Payment
mechanism
Basket of
services
paid for
Provider incentives to
Risk borne by
payer
FFS
Salary
Salary and
bonus
Capitation
each item of
service and
consultation
one week or
one month
work
bonus based
on no. of
patients
all covered
services for
one person
in a given
period
by provider
all risk
no risk borne
borne
by provider
by payer
increase no.
of patients
decrease
activity per
consultation
increase
select
reported illness healthier
severity
patients
yes
no
yes
no
all risk
no risk borne
by physician
no
n/a
n/a
yes
salary
portion
bonus portion
yes
n/a
n/a
yes
amount
above
‘stoploss’
ceiling
all risk borne
by provider
up to a given
ceiling (stoploss)
yes
no
no
yes
Source: Maynard and Bloor
Hospital Payment
• Inpatient hospital vs outpatient hospital
• Inclusion or exclusion of physicians
practicing in the hospital
• Capital costs vs operating costs
• Teaching hospitals, specialty hospitals,
and general hospitals
• Extra billing of patients
Hospital Payment Systems
• Retrospective cost reimbursement
• Prospective payments per service or case – fee
for service, payment by day, payment by
admission, and payment by diagnosis-adjusted
admission (e.g., DRGs)
• Budgets – line item, categories of spending
(salaries, supplies, pharmaceuticals, other),
global
• Capitation
Hospital Payment Incentives
•
•
•
•
Overall hospital costs
Efficient hospital costs
Inpatient vs outpatient hospital costs
Individual patient’s costs, access,
utilization, quality
• Physician costs
• Overall health care costs
Retrospective Cost Reimbursement
• Hospital is paid after the fact for
‘reasonable costs’ incurred in treating
patients
• Good incentives for access and service
provision
• No incentives to control costs unless there
are cost limits
• Administratively complex
Prospective Payment Per Service or
Case
• Fee-for-service – strong incentives to increase number
of services, good on access grounds, poor on overall
cost grounds
• Payment by day – similar to fee for service; incentives to
increase admissions and ALOS, but no incentives to
increase individual services provided per day
• Payment per admission – incentives to increase number
of admissions, reduce length of stay and services
provided during the stay, and accept healthier patients
• Payment per diagnosis adjusted admission – incentives
to specialize in conditions where hospital is most
efficient, accept less severe cases within the diagnostic
group, and reduce length of stay and services provided
during the stay
Budgets
• Line item and categories of items budgets – controls
expenditures for narrow or broader categories of
services, limit ability of hospital manager to operate
efficiently and react to local circumstances if they cannot
reallocate across categories, will promote inefficiency
and waste if the initial allocations are not based on
efficiency criteria, few incentives for quality or access
• Global budgets – give hospital administrators flexibility to
reallocate across categories, controls overall hospital
costs, but unless case-mix adjusted provides incentives
for hospitals to not accept or under service more
complex cases, few incentives for quality or access
Hospital Payment Mechanisms:
Financial Risk and Incentives
Payment
mechanism
Basket of
services paid
for
FFS
each agreed
item of
service and
consultation
Case
payment
(e.g. DRG)
payment
rates vary by
case
Admission
each
admission
Per diem
each patient
day
Capitation
Global
budget
all covered
services for
one person
in a given
period
all services
provided by
an institution
in a given
period
Risk borne by
payer
by provider
all risk borne
by payer
risk of no. of
cases and
severity
classification
risk of
number of
admissions
risk of
number of
days
amount above
‘stop-loss’
ceiling
no risk borne
by the payer
Provider incentives to
increase
no. of
patients
decrease
activity
per
consultation
increase
reported
illness
severity
select
healthier
patients
no risk borne
by provider
yes
no
yes
no
risk of cost of
treatment for
a given case
yes
yes
yes
yes
yes
yes
no
yes
yes
yes
no
no
yes
n/a
no
yes
no
n/a
n/a
yes
risk of no. of
services per
admission
risk of cost of
services per
day
all risk borne
by provider
up to a given
ceiling (stoploss)
all risk borne
by provider
Source: Maynard and Bloor
Managed Care
• Systems that integrate financing and
delivery of contractually defined health
services to enrollees
– arrangements with select providers
(networks)
– explicit standards to select providers
– formal programs for quality improvement,
utilization review, and demand management
– focus on prevention, limited cost-sharing
– financial incentives for enrollees to use
network doctors
Source: modified from HIAA, 1995
Standard Health Insurance vs Managed Care
Health Insurance
(U.S. 15 – 20 yrs
ago)
• free beneficiary choice of
provider
• fee-for-service payments to
providers
• not integrated with the delivery
system
• insurer accepts all the financial
risk
• little quality measurement and
very limited care management
Source: modified from modified from HIAA, 1995
Managed
Care
• selected provider network
• gatekeeper role of primary care
physician and other utilization
managers
• negotiated payments and
incentives for cost control
• integrated systems
• risk is shared
• measures quality &
appropriateness
• generally, more covered services /
benefits
• low out-of-pocket costs for
members using the network
Managed Care Features
Governments
Employers
Contributions by employee
or household
Individuals
Premiums/
Risk-Adjusted
Capitation
Beneficiaries
Extra Payment
For out of plan use
In POS plans
Non-Network
Providers
Managed Care
Organization
Cost-sharing
Network/
Preferred Providers:
Services
Utilization/
Demand mgmt
Staff
Group
Network
IPA
Selection criteria
Reimbursement Procedures
Risk sharing arrangements
Quality assurance
Managed Care Mechanisms
• Establishing risk-adjusted premiums
• Determining the benefit package including
consumer cost-sharing
• Selection and organization of provider
network
• Transferring risk and paying providers
• Monitoring quality and controlling service
utilization
Source: Glied
Adverse Selection
• Definition: The problem of attracting
members who are sicker than the general
population
• How can it be managed?
Cigich SM. Ch 23: Rating and Underwriting. in Kongstvedt Essentials of Managed
Care, 2nd edn
Why Risk Adjusters are Necessary?
• To deter plans from selecting or
marketing to healthier enrollees
• To protect plans from being selected by
a costlier than average group of
enrollees &, in worst case, go broke.
• To facilitate plans’ attempts to specialize
in treating people with certain illnesses
or conditions; to support different levels
of care
Source: modified from PPRC, 1994
Risk Adjustment Mechanisms
• Risk segmentation in health insurance markets due to
adverse selection and medical underwriting can result in
the sickest individuals being denied access to affordable
health insurance and/or care
• Can mitigate this problem by risk assessment and risk
adjustment ex ante or ex post
• Risk assessment – means of predicting the deviations of
each individual’s expected costs from the average
enrollee’s costs
• Risk adjustment – the method used to compensate a
health plan according to the amount of risk it assumes,
making it possible to compensate insurance plans
according to the risks of the enrollees they take on
Source: Rogal and Lee and Rogal
Ex Post Risk Adjustment
• Ex post adjustments can take place through hold
harmless provisions/reinsurance/reimbursement for
expenses incurred above certain thresholds.
• Examples include reinsurance for high cost cases,
stop/loss insurance, reimbursement supplements when
certain conditions are met (e.g., length of stay or cost
outliers under a hospital DRG system).
• Ex ante risk adjustors can also be used in ex post
adjustment systems.
• Ex post adjustors add some uncertainty for the
insurer/MCO.
Ex Ante Risk Assessment Models
• Demographic variables – age, sex, family
status, location, and welfare status
• Health status – self-reported health status,
diagnosis, prior service use
Models
• AAPCC (adjusted average per capita costs) – used by
U.S. Medicare program, based on average payments for
fee for service providers in a county adjusted for
differences in input prices. This amount is then adjusted
for age, sex, welfare status, institutional status, disability
status, and ESRD status.
• ACGs (adjusted clinical groups) – diagnosis-based
measure, which classifies each individual into one of 81
categories based on inpatient and ambulatory diagnosis
codes. Categories are all mutually exclusive.
Models
• DCGs (Diagnostic Cost Groups) – uses inpatient and
ambulatory diagnoses in one year to predict total
medical expenditures. Individuals are assigned to one or
more of 136 possible medical condition categories based
on diagnosis code and one of 32 age/gender categories.
• RXGroups – is a pharmacy based risk assessment
model which assigns each individual to one or more of
27 medical categories for adults and 42 for children.
Each person is also assigned to one of 22 age/gender
groups.
• Self-Reported Health Status – use Short Form 36 (SF36), which captures multiple dimensions of health.
Survey is self-administered and widely used in outcomes
research.
Models
• Physiologic Health Measures – cholesterol
levels above 259, diastolic blood pressure above
89, glucose level above 159, etc. Problem is
these measures go beyond information available
on claims forms
• Mortality – using mortality for certain high cost
groups (e.g., ESRD, cancer)
• Health Service Use – total expenditures, number
of hospital days in the past two years
Summary Findings
• Simple models using age and sex can predict medical expenditures
well at the group level, particularly for random groups over 1000.
• Models predict less well for non-random subgroups such as those
with previously low expenditures, cancer patients, or those with prior
multiple hospitalizations. However, non-random groups that enroll in
specific insurance plans/MCOs may be quite important from a policy
perspective.
• Pharmacy-based models perform at a level similar to diagnosisbased models for prospective risk assessment but less well in terms
of predicting spending in the same year (concurrent risk
assessment).
• No system has yet been shown to adequately predict variations in
individual expenditures. However, existing systems may temper the
worst selection bias incentives.
Source: Society of Actuaries, 1995, 2002
Practical Concerns of Risk Adjustment
• Need to predict health expenditures well enough
to limit risk selection by insurance plans and
MCOs
• Administrative feasibility including availability,
accuracy and timeliness of information
• Resistant to gaming behavior by providers
• Must not provide incentives for socially inefficient
behavior such as unnecessary hospital
admissions
Source: Dunn et al., Society of Actuaries
Basic Managed Care Models:
Defined by Physician Employment
Control
over practice
• IPA - contracts with a managed care plan,
physicians remain independent
• Network - managed care plan contracts with
multiple physician groups for services
• Group - managed care plan contracts with a
medical group for services
• Staff - physicians are employees; treat
members in the MCO’s facilities
Most
Least
Key: Physicians control resources, so management structures and
their payment incentives leverage costs in the health sector.
Point of Service (POS) Plans:
A Product to Offer More Choice
•
•
•
•
Comprehensive benefits
More consumer choice
Use primary physician for care and referrals
Use of out-of-network providers with larger
member payments
• Each time services are used, the member
decides at the point-of-service to go in or out of
the network
• Actuarial projections underestimated
enrollment and use
Source: modified from HIAA, 1995
Managed Care Approaches to Cost
Control
• Reimbursement Methods
• Contract negotiations
• Choice of Provider(s), then
– Credentialing
– Profiling
•
•
•
•
“Gatekeeper”
Utilization Review
Case Management
Quality Measurement
Source: modified from HIAA, 1995
Utilization Management Through Profiling
Physician A is Ordering More Diagnostics for Asthma Patients than Physicians in
the Peer Group
35%
% of Asthma Episodes
30%
Physician A
29%
Peer Group
25%
20%
16%
14%
15%
10%
6%
5%
7%
2%
0%
Chest X-Ray
Source: Schneider
Breathing Capacity
Test
Thyroid Panel
Managed Care Messages
• There is no single model of managed care – ‘if
you’ve seen one managed care organization
(MCO), you’ve seen one’.
• Managed care embodies a variety of health
policy choices concerning provider payment
methods, risk adjustment, utilization
management, utilization review, vertical and
horizontal integration of the delivery system, and
combining financing with delivery.
• Policy-makers need to tailor these various
aspects of managed care to the financing and
delivery situations on the ground.
Pharmaceutical Sector
• Dealing with both health sector policy and industrial
policy as pharmaceutical industry is often a major
industrial, sometimes export-oriented, sector
• Large part of health care spending – 25-40 percent of
health spending in MENA and generally largest item
of household medical expenditures
• Cost control requires control of price and volume of
prescribing
• Efficiency requires demand and supply side
regulation
• Equity may be reduced by user charges
Source: Maynard
Pharmaceutical Sector
• Supply side payment and regulation:
- manufacturing industry
- wholesalers and retailers
• Demand side payment and regulation:
- influencing patients
- influencing doctors
• Consumer and physician education on
rational use of drugs (including guidelines) is
essential
Source: Maynard
Supply Side Regulation: Licensing,
Reimbursement, and Profiling
• Registration procedures broadly similar:
evidence of safety and efficacy
• Many countries restrict reimbursement by
positive lists or negative lists
• Increasingly, governments are encouraging
provision of economic data and evidence of
cost-effectiveness (RCTs and actual practice)
• Profiling physician practices
Source: Modified from Maynard
Physician Profiling and Feedback
Pharmaceutical Cost for Pneumonia in % of Peer Group
200%
185%
176%
180%
160%
140%
149%
131%
118%
120%
100%
84%
80%
77%
62%
60%
40%
20%
0%
A
Source: Schneider
B
C
D
E
F
Physician ID Number
G
H
Supply Side Payment and
Regulation: Price Controls
• Reference price systems: patients pay
any difference between the brand price
and a reference price (for generics or
same therapeutic group)
• Direct cost-plus pricing
• External comparison pricing
• To achieve cost containment, essential
to control not just price but also volume
Source: Maynard
Supply Side: Retailers and Wholesalers
• Fixed profit margins to facilitate cost control
• Require generic substitution
Source: Maynard
Demand Side Regulation and Payment:
Influencing Patients
• Cost sharing – deductibles, copayments,
coinsurance
• Conditional cash transfers
• Reference prices
• Caps
• Consumer education
Source: Maynard
Need to Regulate the Private Sector
• Cost inflation
– Medical care inflation rate usually exceeds the CPI and GDP
deflator
– Health spending growth often exceeds GDP growth
• Inefficiency
– shifting of costs from constrained public to unregulated
private sector
– medical practice variations
– failure to invest in outcome measurement
– absence of practice guidelines
• Inequity
– private markets may cream skim good risks
– poor, sick, elderly likely to be excluded and/or become
responsibility of the public sector
Source: Maynard
Government Tools for Influencing the Private Sector
Level of intrusiveness
Tool or method
Application
Direct provision
·
·
·
Public hospitals and clinics
Preventive services
Sanitation
Financing
·
·
·
·
Budgetary support
Subsidies
Concessions
Contracting
Regulation and mandates
·
·
·
·
·
Taxation
Licensure
Accreditation
Employee health insurance
Required immunization of school children
Information
·
Research—product testing
·
Provider information— treatment protocols,
recommended medicines
·
Consumer information— provider quality comparisons,
consumers’ rights, dangers of smoking, rehydration methods,
birth spacing
Most intrusive
Least intrusive
Source: Taylor adapted from Musgrove 1996
Need to Regulate the Private Sector
• Design of regulatory framework determined by
objectives and their ranking
– cost control is usually the primary problem
• Regulatory frameworks: complex and costly
• Many countries regulate the private sector
inadequately
• Ignoring the need for private sector regulation
ensures cost inflation, inefficiency, inequity, and
cost-shifting to the public sector
Source: Maynard
Implementation Issues
Implementation
Payment Design
Quality
Assurance
Information
Systems
Provider Autonomy
Source: J. Langenbrunner
System Development Issues
• Set payment levels to cover costs of efficient
provision
• Develop contracts among payors, providers
and consumers
• Develop management information and quality
monitoring systems at payor and provider
levels
• Provide appropriate training for payor and
facility personnel and information to
consumers
• Develop needed regulatory structure
including an appeals process
System Development Issues
• Define services covered (i.e. benefit package )
• Obtain unit service cost information
• Define an “efficient” level of service provision
costs
• Evaluate administrative costs of options
including costs to payors, providers and
consumers
• Choose payment method(s)/may vary by
provider type
Implementation Issues
• Demonstrate and evaluate system in sample
facilities, practice settings and geographic areas
• Modify system and implement countrywide
• Undertake needed complementary delivery
system restructuring and manpower training
reforms
• Monitor cost, quality, and access, and revise
system periodically as needed
Lessons
• It is easier to expand access and develop system infrastructure
than to reduce capacity and control costs.
• Macro cost containment strategies have often not resulted in micro
efficiency, and conversely.
• Empowering consumers and having money follow patients within
the context of an overall budget appear to be the preferred
strategies for controlling costs.
• Specific medical care provider payment strategies such as certain
types of managed care, DRGs, and various full and partial risk
sharing approaches, if appropriately implemented, appear to
control costs without compromising quality and access.
Lessons
• When payment reforms are imposed in one part of
the health sector, expenditures and access in other
substitute and complementary sectors must be
monitored.
• Payment mechanisms used in OECD countries
require sophisticated administrative and information
structures.
• New types of managed care arrangements as well as
vertical integration of services have blurred the
distinction between financing, provision, and
reimbursement. There is little hard evidence
concerning the managed care “revolution”.
Lessons
• Fragmented fee for service systems like the U.S.,
without a single payor or set of rules applying to the
whole system, have been the least successful in
controlling expenditures and guaranteeing access.
• Most countries are faced with surpluses of
physicians, especially specialists, and hospital beds,
and have had limited success in controlling either
either.
• Consumer expectations, new technologies, and aging
populations continue to place pressure on health care
expenditures.
ANNEX
CASE MIX BASED
HOSPITAL
PAYMENTS
The Example of Case-Based Payments
Funding and
Managing
Hospital Services
Case Mix Complexity
Source: Wiley, 2006
Case Mix may be understood
as a “system for separating
hospitalized patients into
unique groups based on their
diagnoses and procedures”
(R.B Fetter, Diagnosis related groups, in Encyclopedia of Biostatistics, P.
Armitage, & T. Colton, eds. Wiley, Chichester, 1998)
Dimensions of Hospital Output
• Volume
– numbers treated
• Quality
– hospitals contribution to the successful
outcome/resolution of patients’
illnesses/health problems
Case mix
the proportion of cases of each disease and
health problem treated in the hospital
(Hornbrook, MC Techniques for assessing hospital case-mix, Annual Review of Public
Health, 6, 295-324)
Development of Case-Mix Based
Hospital Payment Systems
• Hospital activity data -- coding of clinical data – ICD–10AM
• Hospital contact information
–
–
–
–
availability at the patient, department, specialty level?
completeness?
quality?
timeliness?
• Choice of specific case-mix payment system
Minimum Basic Data Set
i.
Hospital Number
viii.
Duration of Stay
ii.
Patient Number
ix.
Discharge Status
iii.
Sex
x.
Main Diagnosis
iv.
Age
xi.
Other Diagnoses
v.
Marital Status
xii.
Surgical and Obstetric
Procedures
vi.
Place of Residence
vii.
Month and Year of
Admission
xiii.
Other Significant
Procedures
Source: Wiley, 2006
Source: Wiley 2006
Selection of a Case Mix System
• Patient groups specified should be
– medically meaningful
– defined by commonly found data
– manageable, mutually exclusive, exhaustive
– have similar expected measures of output
utilisation
– be comparable across coding systems
Source: Wiley 2006
Issues Arising When Comparing
Case-Mix Systems
• Data requirements and compatibility with
available clinical coding schemes
• Statistical performance and clinical
acceptability when tested on local data bases
• International use
• Availability of updates, training, technical and
technological support
• Cost, availability, user interface and proprietary
status
• While there are many alternative
approaches to measuring case mix, the
Diagnosis Related Group (DRG) system is
the most commonly applied at the national
level internationally
Source: Wiley 2006
1
“How to” -- Case-Mix Adjusted Per
Admission (“DRGs”)
Statistical
/Economic
Teams
Estimate Costs
Per Category
Collect Financial,
Capacity,
and
Utilization Data
Allocate Costs
by Department
Relative
Weights
Assess Impacts
Form
Groupings
Refine
Groupings
Case-Mix
Groupings
2
Clinical
Teams
Source: Langenbrunner 2006
Data Requirements for DRG Assignment
•
•
•
•
•
•
Primary Diagnosis
Secondary Diagnoses
Surgical Procedures performed
Age
Sex
Discharge status
– Additional
• Birth weight, days on mechanical
ventilation, mental health legal status,
same day status
Source: Wiley 2006
Strategic Issues
• Objectives?
– Greater productivity?
– Improved efficiency?
– Cost containment?
• Data sources
– Quality
– Comprehensiveness
– Timeliness
• Technical Factors
– Coding systems
– Feasible Options
– Supports
Source: Wiley 2006
DRG Assignment
• Initial classification by Major
Diagnostic Category (MDC)
– 25 MDCs approximate body
system/medical specialty
• Final classification by Diagnosis
Related Group (DRG)
– there are currently over 500 groups
in the generic DRG system
Source: Wiley 2003
Major Diagnostic Categories
MDC
1
Diseases and Disorders of the Nervous System
2
Diseases and Disorders of the Eye
3
Diseases and Disorders of the Ear, Nose, Mouth & Throat
4
Diseases and Disorders of the Respiratory System
5
Diseases and Disorders of the Circulatory System
6
Diseases and Disorders of the Digestive System
7
Diseases and Disorders of the Hepatobiliary System & Pancreas
8
Diseases and Disorders of the Musculoskeletal System & Connective Tissue
9
Diseases and Disorders of the Skin, Subcutaneous Tissue and Breast
10
Endocrine, Nutritional & Metabolic Diseases and Disorders
11
Diseases and Disorders of the Kidney & Urinary Tract
12
Diseases and Disorders of the Male Reproductive System
13
Diseases and Disorders of the Female Reproductive System
14
Pregnancy, Childbirth & The Puerperium
15
Newborns & Other Neonates with Conditions Originating in the Perinatal Period
16
Diseases and Disorders of the Blood, Blood Forming Organs and Immunological
Disorders
17
Myeloproliferative Diseases and Disorders, and Poorly Differentiated Neoplasms
18
Infectious & Parasitic Diseases, (Systemic or Unspecified Sites)
19
Mental Diseases & Disorders
20
Alcohol/Drug Use and Alcohol/Drug Induced Organic Mental Disorders
21
Injuries, Poisoning & Toxic Effects of Drugs
22
Burns
23
Factors Influencing Health Status and Other Contacts with Health Services
24
Multiple Significant Trauma
25
Human Immunodeficiency Virus Infections
(Source: DRG Definitions Manual)
Wiley 2003
Source: Wiley 2003
Source: Wiley 2003
Source: Wiley 2003
Dominant DRG Groupers Internationally
AR-DRGs
(Australia)
HCFA (CMS)
DRGs
(1989-)
AP-DRGs
(1988-)
APR-DRGs
(1991-)
IR-DRGs
(2000-)
SR-DRGs
(1994)
NY-DRGs
(1990)
NY-DRGs
NACHRI
(1988-1989)
HCFA DRGs
(1983- 1988)
Source: Wiley 2006
(Yale) DRGs
(1979)
(Yale) RDRGs
(1989)
Other Steps
• Cost data must be collected
• Costs must be allocated to each DRG
category resulting in the determination of
the relative weights per case
• A standardized cost per case needs to be
determined
• Other appropriate adjustments need to be
decided – teaching hospitals, regional cost
differences in inputs, etc.
Payment Per Case = BR * CWG
where,
Payment per case = price paid by purchaser for cases
in a particular case group
BR
= base rate, or global average
cost per case
CGW
= case group weight for case group
Source: Langenbrunner 2006
Incentives of DRGs for Providers
• Cut unnecessary
hospitalizations
• Reduce inputs per case
• Improve the efficiency
and quality of the input
mix
• Reduce length of stay
• Shift post-acute care
(e.g., rehab) to the
outpatient setting
• Improve data and
record keeping
Source: Langenbrunner 2006
• Increase unnecessary
admissions and readmissions
• Excessive reduction in
care and intensity
• Avoidance of costly
cases
• Premature discharge
• Poor post-acute
placement
• Upcoding or recoding to
improve reimbursement
rate
Provider Payment Issues
• What are the major problems with the provider payment
mechanisms used in Thailand:
– no incentives for technical and allocative efficiency, no limit on
spending, poor quality, and/or limited access
– who are the current winners and losers -- physicians, hospitals,
patients, health insurance funds, governments?
• What are the most needed reforms?
• What are major impediments to implementing these
reforms:
– lack of information on clinical effectiveness
– lack of information on costs and cost-effectiveness
– lack of provider and patient level information on diagnosis and
procedures
– lack of technical knowledge of payment methods – DRGs,
capitation, managed care, etc.
– other?