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Moving Beyond P4P:
New Payment Systems to Accelerate
Value-Driven Health Care
Harold D. Miller
Strategic Initiatives Consultant
Pittsburgh Regional Health Initiative
February 29, 2008
NRHI: The Network for
Regional Health Improvement
• NRHI formed in 2006 to help facilitate health care
quality improvement at the regional level, with
support from the Robert Wood Johnson Foundation
• Founding members:
–
–
–
–
–
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Institute for Clinical Systems Improvement
Massachusetts Health Quality Partners
Minnesota Community Measurement
Pacific Business Group on Health
Pittsburgh Regional Health Initiative
Wisconsin Collaborative for Healthcare Quality
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Common Concerns of NRHI Members
About Payment Systems and P4P
• Payment Systems Impede Quality Improvement
– Providers may not be paid at all if they do the right thing
– Providers may lose money by reducing errors, infections
• P4P Initiatives Don’t Solve the Basic Problems
– Amounts of bonuses and penalties too small to offset
rewards/penalties in the underlying payment system
– Focus on documenting processes, rather than achieving
outcomes, in P4P deters innovation and adds
administrative burden on providers
– Limitation to measurable processes with standards may
divert attention from other processes or outcomes
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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NRHI Summit: “Creating Payment Systems to
Accelerate Value-Driven Health Care” (3/29/07)
Nearly 100
attendees
from all across
the country
Key payment
reform issues
identified for
resolution
Sponsors:
•Commonwealth Fund
•Jewish Healthcare Fdn
•California HealthCare Fdn
•Robert Wood Johnson Fdn
Intensive
4 hour
work
sessions
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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What the Payment Summit Tackled
• Four Groups of Patients/Conditions:
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–
–
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Care of Major Acute Episodes (heart attack, cancer, trauma, etc.)
Care of Stable Chronic Conditions (diabetes, CHF, COPD, etc.)
Care of Unstable Chronic Conditions (multiple diseases, end-of-life)
Preventive Care/Minor Acute Episodes (immunizations, minor
wounds, etc.)
• Five Categories of Issues:
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–
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What method of payment should be used to compensate providers?
Should payments for multiple providers be “bundled” together?
How should the actual level of payment be determined?
What performance standards should be set, and should there be
performance incentives?
– Should there be incentives for patients regarding choice of providers
and participation in care?
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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What the Payment Summit Tackled
• Four Groups of Patients/Conditions:
–
–
–
–
Care of Major Acute Episodes (heart attack, cancer, trauma, etc.)
Care of Stable Chronic Conditions (diabetes, CHF, COPD, etc.)
Care of Unstable Chronic Conditions (multiple diseases, end-of-life)
Preventive Care/Minor Acute Episodes (immunizations, minor
wounds, etc.)
• Five Categories of Issues:
–
–
–
–
What method of payment should be used to compensate providers?
Should payments for multiple providers be “bundled” together?
How should the actual level of payment be determined?
What performance standards should be set, and should there be
performance incentives?
– Should there be incentives for patients regarding choice of providers
and participation in care?
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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What are the Choices for
Payment Methods?
CONTINUUM OF HEALTHCARE PAYMENT METHODS
Risk: Patient Overtreatment
Fee for
Service
(FFS)
Per
Diem
Episode
of Care
Payment
(ECP)
Risk: Patient Undertreatment
Multi-Provider
Bundled
Episode
of Care
Payment
ConditionSpecific
Capitation
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
Full
Capitation
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What Are the Tradeoffs
in Alternative Payment Methods?
VARIABLES CONTRIBUTING TO THE COST OF CARE
Cost
Patient
=
Cost
Process
x
# Processes
Service
x
# Services
Episode
of Care
x
# Episodes
of Care
Condition
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
# Conditions
x Patient
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What Are the Tradeoffs
in Alternative Payment Methods?
VARIABLES FOR WHICH THE PROVIDER IS AT RISK
UNDER ALTERNATIVE PAYMENT SYSTEMS
Cost
Patient
=
Cost
Process
x
# Processes
Service
- FEE FOR SERVICE -
x
# Services
Episode
of Care
x
# Episodes
of Care
Condition
# Conditions
x Patient
-- EPISODE OF CARE PAYMENT -------- CONDITION-SPECIFIC CAPITATION ----------------------------------- FULL CAPITATION -----------------------------
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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What Are the Tradeoffs
in Alternative Payment Methods?
VARIABLES FOR WHICH THE PROVIDER IS AT RISK
UNDER ALTERNATIVE PAYMENT SYSTEMS
Cost
Patient
=
Cost
Process
x
# Processes
Service
- FEE FOR SERVICE -
x
# Services
Episode
of Care
x
# Episodes
of Care
Condition
# Conditions
x Patient
-- EPISODE OF CARE PAYMENT -------- CONDITION-SPECIFIC CAPITATION ----------------------------------- FULL CAPITATION ----------------------------TECHNICAL RISK
INSURANCE RISK
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 1
• Basic Method of Payment
– a single “Episode-of-Care Payment” should be made to
cover all of a provider’s services associated with an
episode of care for a patient
– the amount should be adjusted for the diagnosis,
complexity, and risk of the patient
– the amount should be prospectively defined, but with a
retrospective adjustment based on performance
– each provider (hospitals, physicians, home health care
agencies, etc.) involved should be paid on this basis
– all costs (facilities, professional services, drugs, medical
devices, etc.) should be covered by the payment
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 2
• Bundling of Payments For Multiple Providers
– a single payment should be defined that covers the
services provided by ALL of the following:
• the hospital and its staff
• the physicians involved in the care
• post-acute care providers (home health, rehab, etc.)
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 3
• Allocation of Bundled Payments Among Multiple
Providers
– LONG RUN: groups of providers need to define a single
accountable payee for receiving and allocating the
episode-of-care payment among themselves
– SHORT RUN: where no such arrangement has been
defined, payers should allocate the payment among
providers based on a standard allocation determined
when the payment level is established
– INCENTIVES should be created to encourage groups of
providers to create joint arrangements for receiving and
allocating payments among themselves
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 4
• Restrictions on How Profits/Losses Are Divided
– Providers should be free to work out their own
arrangements as to how any profits/losses incurred on a
bundled payment should be divided
NOTE: this may require modifications to Stark law
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 5
• Determination of the Base Payment Level
– for each combination of diagnosis and patient
complexity/severity, a national, state, or regional
collaborative (with representation from payers and
providers) should determine a recommended payment
level based on a study to estimate the cost of delivering
good quality care for that type of patient
– providers should propose their actual price for the
episode of care in negotiations with payers
– recommended base payment levels should vary from
region-to-region based on cost-of-living differences, but
other cost differences (e.g., efficiencies) should be
captured by providers in their proposed prices
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 6
• Adjustments in Payment for Providers with
Special Characteristics
(e.g., Teaching Hospitals)
– Base payment levels for episodes of care should not be
adjusted for special characteristics
– Separate payments should be made to providers to cover
these costs
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 7
• Payment Adjustments for Outlier Cases
– some adjustment should be made for cases where the
level of services (not costs) required for quality care
significantly exceeds typical levels
– the adjustment needs to reflect whether improved
outcomes are being achieved for higher levels of services
• Payment for Preventable Adverse Events
– no payment to providers for additional care needed to
address preventable events or the complications resulting
from such events
NOTE: this is much broader than Medicare’s new policy
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 8
• Level of Service/Performance Required to
Receive the Base Payment Level
– processes considered mandatory (based on evidence) for
patients in a particular diagnosis/severity category should
be defined by payers or a collaborative
– providers should only be paid if those mandatory
processes are delivered, unless there is clear
documentation that the processes are contra-indicated for
the patient or if the patient is participating in a formal
clinical trial of alternative processes
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 9
• Financial Incentives Beyond
Base Payment Level
– financial incentives should be provided for those aspects
of care for which the payment system provides
inadequate incentives or undesirable disincentives
– e.g., high rates of utilization of services relative to norms
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 10
• Encouraging Patients to Choose
High Quality/Low Cost Providers
– patients should be given financial incentives/disincentives
by payers (e.g., different co-pays or co-insurance
amounts) for using providers with different levels of
quality and/or cost
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Recommended Approach for
Paying for Major Acute Care, Part 11
• Encouraging/Assisting Patients to Adhere to
Care Processes That Affect Outcomes or Costs
– payers should provide financial incentives to providers;
– and payers and providers should provide financial
incentives to patients
– to encourage patient adherence with care processes
• Encouraging Providers to Discuss
Treatment Options With Patients
– payers should provide financial incentives to providers
based on the level of patient involvement in care planning
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Summary of Approach for
Paying for Major Acute Care
• Single payment for episode of care covering:
– all services, medications, devices
– all providers (hospital, physicians, post-acute care)
• Defined by providers, starting from recommended amt.
• Allocated among providers by:
– providers themselves if possible
– payers if necessary
• Adjustments in payment for:
– performance on outcomes
– service outliers, if outcome-beneficial
• No payment:
– if mandatory processes are not covered
– for additional costs associated with preventable adverse events
• Financial incentives to patients:
– to select high-value providers and services
– to adhere to care processes affecting outcomes
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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How the Proposed Approach
Improves on the Current System
• Physicians no longer paid more for longer hospital
stays, more procedures, or adverse events
• Hospitals have incentive to prevent adverse events,
prevent readmissions, and use the right
combination of in-patient and post-acute care
• Physicians and hospitals have incentive to
cooperate in optimizing care quality and cost
• Providers have the funding flexibility to use the best
combination of facilities and services for max. value
• Patients have an incentive to choose the facility and
services that provide the best value (quality + cost)
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Similarities and Differences With
Other Systems, Existing & Planned
• Medicare Hospital DRGs
– are episode of care payments, adjusted for complexity
– but only for a portion of the episode
– and only for a single provider
• Prometheus Payment
– covers full episode of care and all providers
– deals with both integrated and non-integrated providers
– but establishes the exact payment amount, rather than
recommending it and allowing providers to self-price in
negotiations with payers or to compete for consumers
– and bases full payment on whether all processes used in
establishing the payment amount are performed, rather
than focusing on outcomes
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Similarities and Differences with
Other Systems, Existing and Planned
• Geisinger ProvenCare
SM
– currently for coronary artery bypass graft surgery; plans
to expand to hip replacement, cataract surgery,
angioplasty, erythropoietin
– covers any follow-up care needed for avoidable
complications within 90 days at no additional charge
– assures 40 care process benchmarks are followed
– provider-driven (though started with integrated payer)
• Minnesota Patient Choice (BHCAG)
– providers bid on risk-adjusted (total) cost of patient care
– patients incur differential costs based on the cost/quality
tier of the provider they select
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Summit Recommendations for
Encouraging Implementation
• Pursue Demonstration/Pilot Projects
– to learn about unintended consequences
– focus on limited, specific conditions that are relatively
homogeneous and where transparency exists
– pursue at the regional level to get a range of demos, with
national support
• Rapid Evaluation and Replication of Demos
– method of information sharing on demonstrations already
done and underway as well as completed/evaluated
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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The Challenges of Getting
Cooperation and Critical Mass
PAYMENT REFORM
Purchaser
Payer
Provider
BENEFITS: Lower Costs;
Lower Worker
Absences
COSTS/
RISKS:
Patient
Better Health
Costs of Reworking
Systems;
Benefits May
Accrue to Other
Payers
Lower Revenues;
Upfront Investment
in Improved
Systems;
Fairness of
Measurement
BENEFITS AND COSTS ACCRUE TO DIFFERENT ENTITIES
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Encouraging Implementation, Part 2
• Provide incentives for providers to do tough
demos
–
–
–
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pay more for demonstrations
pay to offset higher administrative costs
get all payers involved
provide some assurance that this is the direction for the
future, rather than merely tests of possible concepts
• Provide incentives to get payers to the table
– competition among payers inhibits multi-payer demos
– national payers don’t want local variations
– employers/purchasers will need to push for change
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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A Lot of Important Details Required
to Create Demonstrations
• What is included in an Episode of Care?
– The work that Prometheus is doing can provide the
foundation for this, but variations in the actual payment
mechanism may be needed
• How can bundled payments be made to
fragmented providers?
– Elliott Fisher has proposed accountable care
organizations based on hospitals and their referring MDs
– Michigan Blue Cross/Blue Shield is encouraging small
physician practices to join together through its Physician
Group Incentive Program (which supports quality
improvement initiatives and distributes incentive pmts)
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Will Require Fundamental Changes in
Payer Approach to Succeed
• Competitive pricing, not payer-defined pricing
• Patient choice based on value, instead of P4P
– Payers will not save money if patients do not move to
more efficient, higher quality providers
• giving incentive payments (i.e., paying more) to providers who are
more efficient defeats the goal of increased efficiency
– Administered pricing systems (i.e., the payer defines the
payment) do not generally enable the provider to lower its
price on specific services where efficiencies are possible
– There is little incentive for providers to lower their costs
and price if they can’t attract more patients, and most
payers don’t provide (strong) incentives to patients to use
lower-cost, higher value providers
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Encouraging Competitive Pricing:
Creating Better Information on Value
• Example: Pennsylvania Health Care Cost Containment
Council Report on Cardiac Care (2005)
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Encouraging Competitive Pricing:
Creating Competitive Marketplaces
• Providers need ways to compete for consumers on value
• Some entrepreneurial efforts are emerging, e.g., Carol.com
in Minneapolis/St. Paul that is providing a virtual
“marketplace” for care choices with prices
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Conclusions from the Summit
Regarding Next Steps
• Fundamental changes in payment systems are highly
desirable, if not essential, but very difficult
• Regional collaboratives of payers and providers, working in
a national network, should take the lead
• Purchasers and clinicians, as well as payers,
must be involved in payment system redesign
• Regional demonstrations are the most desirable way to
move forward, if most payers participate
• Medicare/Medicaid participation is desirable, but not
essential
• Demonstrations should be “budget neutral”
• Capacity of providers to manage and coordinate care also
needs to be improved
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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Bottom Line: Payment Reform
Necessary But Not Sufficient
Payment
Reform
Cost &
Quality
Transparency
Quality
Improvement
Initiatives
Provider
Organization
© 2007, 2008 Network for Regional Health Improvement, Pittsburgh Regional Health Initiative
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For More Information:
Harold D. Miller
Strategic Initiatives Consultant, Pittsburgh Regional Health Initiative
and President, Future Strategies, LLC
320 Ft. Duquesne Boulevard, Suite 20-J
Pittsburgh, PA 15222
[email protected]
(412) 803-3650
www.nrhi.org/summit.html
www.prhi.org