Paying Less But Getting More? Only In Health Care!

piggy-bank-on-money-md2TIME Magazine reports that the White House may be considering adopting Prometheus, a payment system developed in Illinois, which “calculates compensation for hospitals and doctors based not on the specific treatments a patient receives but on the care a patient should receive ‘per episode’“:

Taking the congestive-heart-failure example, here’s how the payment scheme would work: A slightly overweight 60-year-old heart-failure patient comes in with coronary-artery disease and acid-reflux disease. According to a Prometheus algorithm, this patient should cost $20,750 a year to treat — including office visits, medications, blood-pressure monitoring and an allowance for complications. The incentive for the heart patient’s doctor to spend less than $20,750 is that he gets to keep a portion of the difference (assuming that the patient was managed properly and happy with the outcome). And the best way to keep costs low is to offer the best care: If the doctor is negligent in monitoring the patient’s condition or fails to counsel the patient fully about proper diet and exercise, that patient could have a heart attack — requiring more treatments — and the doctor would take a financial hit.

Payment reform is at once one of the most under-reported aspects of health care reform and one of the most important. The general idea is to reward medical providers (doctors, hospitals) for the quality of care they deliver rather than quantity and to move away from a payment system that pays for every single service separately. Experts estimate that just paying providers differently can save billions of dollars and drastically improve care quality.

We currently pay our health care providers on a fee-for-service basis, like a restaurant charging the customer for every spoon, fork, or condiment. If restaurants actually operated like that, they would cart out unnecessary silverware to pad the bill. But they don’t. Instead, they charge a flat fee for a dish and work hard to make sure that the food is good and the customer comes back the following week. Health reformers believe we can apply the same theory to health care providers: paying for every single service encourages overutilization and drives up health care costs, allowing the federal government to reimburse for entire episodes of care, bundling payments for certain procedures, and encouraging providers to offer more preventive treatments would not only lower health care spending, but also improve health outcomes (by reducing redundant, unnecessary or harmful treatments). Once Medicare adopts these payment methods, private payers would follow suit, the theory goes.

The key is focusing on patient outcomes, something previous reformers ignored. As TIME recalls, Medicare adopted a similar initiative in 1993, “bundling payments for hospital stays.” But, “since hospitals were paid a certain amount of money for each patient no matter how long they stayed, many patients were discharged sooner than was prudent, which transferred the burden of care onto nursing homes and created a “mini-industry of readmissions.”

The different pilot reform programs currently under consideration wed outcomes to reform, and, most importantly, allow the Secretary of Health and Human Services or the Center for Medicare and Medicaid Services to expand successful models. In a recent paper, CAPAF policy experts Ellen-Marie Whelan and Judy Feder detail the recent proposals, which I have adapted into the table below:

House’s Tri Committee Draft Bill Senate Finance Committee Draft
Primary Care Bonus:
Medicare would pay a bonus payment to primary care providers.
5% to 10% bonus; primary care providers in under served areas would receive a higher bonus. 5% bonus for primary care providers.
Medical Home Model:
Certain practices would receive extra Medicare payments to provide a full array of coordinated primary care services.
Primary care practices and community based medical homes qualify for the extra payment. Only primary home models qualify for the extra payment.
Accountable Care Organization:
A group of providers, including doctors and hospitals, who accept responsibility for caring for a group of patients. If the organization can perform the same services for less, Medicare and the organization split the savings.
Both versions expand pilot programs and give extra consideration to small groups who participate. (80 % of physicians work in groups of five or less.)
Bundled Payments:
Medicare would pay a fixed amount for all of the services provided to a patient for a particular condition.
Both versions propose paying a single fee to hospitals to cover the cost of the hospital stay and the immediate care (for that condition) that follows it.

As RAND economist Melinda Beeuwkes Buntin and Harvard University professor David Cutler explain in a new paper, not only will these reforms improve the quality of care, but they could also lead to federal savings of about $299 billion over the next decade. In fact, payment reform that “is based on the idea that good care should be rewarded more than just more treatment…could save about 8 percent of projected spending over the next decade.”