FINAL EXAM: PROVIDER PAYMENT AND MANAGING CARE /PERFORMANCE INDICATORS

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READING 1

PAYING PROVIDERS: BASIC CONCEPTS

A. CLARIFYNG KEY CONCEPTS.

Price, Cost, and Expenditure: Health care literature has an unfortunate habit of mixing up the terms
Price, Cost, and Expenditure. Usually when that literature talks about Cost, it means Price.

Cost: The total monetary price of all the inputs that went into the creation of any good or service. Those
inputs would include physical and mental work, amortized training and education pertinent to the production
of the good or service, physical goods and services, etc.

Price: The price of a given good or service is a function of the related input costs, the scarcity of the good or
service, the value a consumer assigns to the good or service, the degree of monopoly or oligopoly power held
by the supplier of the good and/or service, and (in the case of physician services) the value which the provider
assigns to the good or service. When private contracts or government regulation set limits on prices, those
factors also affect the price.

Expenditure: Paying out money for a good or service by paying the price.

National Health Expenditures for Personal Health Care Goods and Services: The national aggregate
of all the actual prices paid for all personal health care goods and services in a given year.

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B. USING PAYMENT FOR SERVICES TO MANAGE HEALTH CARE.

The assumption is that financial incentives and penalties, expressed in various payment systems and forms, and if
properly thought through, crafted, and implemented, can be used by insurance companies, government payers,
integrated delivery systems, and other provider groups to positively affect the behavior and decisions of providers.

What are we trying to accomplish by using different forms of payment to influence provider and in some cases
consumer behavior?

1. What are the expected positive results of managing care through the intelligent use of
Payment?

• Ensuring that patients receive appropriate care: the right care (appropriate and effective) in the right type of delivery
site.

• For hospital care – that lengths of stay are neither too long nor too short.

• Ensuring that care is delivered efficiently.

• Ensuring that care is accessible and reasonably priced.

• Ensuring that care is delivered with the appropriate coordination of providers and services, and that the appropriate
follow-up is provided.

2. What do we mean by Payment?

• Dollars paid to Providers of Personal Health Care Goods and Services to compensate those Providers for
the goods and services they have delivered to health plan enrollees/patients.

These dollars may be paid directly by the health plan enrollees/patients (payment of deductibles, copayments,
coinsurance; payments for services not covered; payments of personally negotiated amounts by individuals
and families without any kind of health insurance).

These dollars may be paid by health insurance plans in accordance with payment rate schedules negotiated by
those health insurance plans and providers (hospitals, integrated delivery systems, physician groups, small
physician practices, rehabilitation centers, home health agencies, etc.)

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Within Integrated Delivery Systems: The System may take the payments received from insurance plans and
uninsured individuals and families and may develop their own internal systems for paying employed
physicians, physicians whose practices have been purchased by the Integrated Delivery System, and
institutional providers owned by the System.

• Main types of payment:

Fee for Service Payment:

Physician Services: Pure; quality – adjusted (Pay for Performance); may be accompanied by flat payments
supporting better coordinated care, the provision of electronic health information, and/or the active use of
electronic health information for effective clinical management.

Hospital Services – Charges, Per Diems: Pure; quality – adjusted (Pay for Performance); may be accompanied
by flat payments supporting better coordinated care, the provision of electronic health information, and/or the
active use of electronic health information for effective clinical management.

Bundled Payments: Episodes of Care (Delivery of Babies); Bundled by Procedure (Hip Replacement); Bundled

by Clinical Condition of Patient and Expected Necessary Services (patients with certain chronic heart conditions).
Might be accompanied by flat payments for the provision of electronic health information, and/or the active use of
electronic health information for effective clinical management.

Payment by Global Budget: For Integrated Delivery Systems, large independent Physician Groups, other types
of institutional providers. quality – adjusted (Pay for Performance); Might be accompanied by flat payments for the
provision of electronic health information, and/or the active use of electronic health information for effective
clinical management.

Adjustments to Main Payment Types: As indicated above – Pay for Performance (quality-adjusted payment):

special payments for coordination; special payments encouraging providers to support the active reporting and
use of electronic health information for clinical decisions; penalties for certain types of behavior in health care
service institutions (excess hospital readmissions within 30 days; excessive hospital-acquired infections and other
conditions.)

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• Influences on payment external to the actions of Health Insurers, Integrated Delivery Systems, Uninsured
Individuals/Families:

State regulation of provider payments.: For example: the Maryland All Payer System, and more recently the

Maryland experiment with Global Budgets.

Proposed (never implemented) Federal limits on insurance premium increases limiting the actions of health
insurers. (1994 Clinton Health Plan).

3. Effectiveness of using Payment systems to guide and motivate the management of health
care goods and services: What else do we need to consider when we use Payment systems
to impact utilization and quality of care?

• Is money a major motivator of provider behavior? If not, how important are other factors?

What about provider professional codes and values?

What about provider concern for patient welfare?

What about the culture of medical and surgical diagnosis and treatment which physicians learn and internalize
in medical school, through post-graduate training, and through their daily interactions with patients, and with
other providers?

What about the corporate cultures of Integrated Delivery Systems?

If money matters: How much additional provider income per health plan enrollee or patient will motivate
providers? How does this vary by provider type?

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• To what extent is the use of Payment Systems to manage health care goods and services dependent on
other complementary activities: Provision of complementary services, provision of information, reliance
on provider input to design and implement payment methods?

If providers understand and agree to the utilization assumptions embedded in the Payment method, will
they be more responsive to the incentives of the payment system? For example, Medicare believes that if it
penalizes hospitals and Integrated Delivery Systems that have excessive readmissions within 30 days for patients
with certain clinical conditions (See below), it will encourage better coordination of care and communication
among hospital-based and post-acute providers.

Chronic Obstructive Pulmonary Disease (COPD)
Elective Primary Total Hip Arthroplasty and/or Total Knee Arthroplasty (THA/TKA)

Educating providers about the goal of the payment method, the assumptions behind the method and supporting
data, and about the care models and resources available to improve coordination, might be needed to motivate
and guide the provider response to the Medicare financial penalty.

If Social Determinants of Health play a large role in the improved management of utilization, above and
beyond clinical care, resources supporting this aspect of improved care will be needed, in addition to
payment types and levels, to get the desired outcome. Payment will not be enough.

If payment methods are clearly related to specific utilization management goals, and these assumptions are
clearly communicated to providers, that may help support the impact of payment on utilization, care
management, and quality.

If providers are actively involved in designing and implementing certain payment models, the

implementation of the models in the real world may be much more acceptable and thus effective in
achieving improved health status and other desired utilization and quality outcomes.

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C. FEE-FOR-SERVICE PAYMENT – PHYSICIANS AND HOSPITALS.

1. Positives:

• Rewards providers for providing all Personal Health Care Goods and Services needed to maximize a
positive health status outcome.

2. Negatives:

• May encourage duplicative or unnecessary care.

• When coordination of medical care and communication among multiple providers and provider sites is
especially important (For example: for the treatment of people with multiple chronic conditions), Fee for
Service encourages providers to think only about their piece of the total menu of services provided to and
needed by the patients.

• In the case of Hospital Per Diems, the danger is that this form of payment encourages unnecessarily long
lengths of stay.

• Actual performance in terms of Quality of Care (Processes of Care, Outcomes of Care) is not adequately
recognized by the payment method.

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D. BUNDLED PAYMENTS/BY PROCEDURE OR CLINICAL CONDITION AND RELATED
TREATMENT – PHYSICIANS AND HOSPITALS.

1. Positives:

• Rewards providers who collaborate to review coordination and efficiency of care, rather than each
provider acting in isolation and with excessive independence or autonomy.

2. Negatives:

• Because total payment for services is limited for each bundle of services, providers may have an incentive
NOT to provide necessary medical goods and services as indicated by the patient’s condition.

• If unaccompanied by additional information on how to improve care and how to avoid unnecessary
utilization, the payment method may not be effective in terms of managing utilization and improving
quality of care.

• If unaccompanied by resources to support the provision of necessary Social Services, Transportation,
etc., the payment method may not be effective.

• Actual performance in terms of Quality of Care (Processes of Care, Outcomes of Care) may not be
adequately recognized by the payment method.

• In the case of Physician Capitation: Capitation amounts may be inadequate, or may be based on
community utilization averages which ignore the actual clinical needs and characteristics of a Physician’s
panel of providers.

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E. THE AFFORDABLE CARE ACT OF 2010: HOW IT ENCOURAGED EXPERIMENTS IN
PAYMENT.

1. Medicare and Bundled Payment Experiments:

2. Linking Payment and Utilization Management:

Penalties for Readmissions within 30 Days

Penalties for Excessive Hospital Acquired Conditions

3. Accountable Care Organizations and Global Budgets:

A. CLARIFYNG KEY CONCEPTS.
B. USING PAYMENT FOR SERVICES TO MANAGE HEALTH CARE.
The assumption is that financial incentives and penalties, expressed in various payment systems and forms, and if properly thought through, crafted, and implemented, can be used by insurance companies, government payers, integrated delivery systems, a…
What are we trying to accomplish by using different forms of payment to influence provider and in some cases consumer behavior?
1. What are the expected positive results of managing care through the intelligent use of Payment?
2. What do we mean by Payment?
 Dollars paid to Providers of Personal Health Care Goods and Services to compensate those Providers for the goods and services they have delivered to health plan enrollees/patients.
 These dollars may be paid directly by the health plan enrollees/patients (payment of deductibles, copayments, coinsurance; payments for services not covered; payments of personally negotiated amounts by individuals and families without any kind of h…
 These dollars may be paid by health insurance plans in accordance with payment rate schedules negotiated by those health insurance plans and providers (hospitals, integrated delivery systems, physician groups, small physician practices, rehabilitati…
 Within Integrated Delivery Systems: The System may take the payments received from insurance plans and uninsured individuals and families and may develop their own internal systems for paying employed physicians, physicians whose practices have been…
3. Effectiveness of using Payment systems to guide and motivate the management of health care goods and services: What else do we need to consider when we use Payment systems to impact utilization and quality of care?
 Is money a major motivator of provider behavior? If not, how important are other factors?
 What about provider professional codes and values?
 What about provider concern for patient welfare?
 What about the culture of medical and surgical diagnosis and treatment which physicians learn and internalize in medical school, through post-graduate training, and through their daily interactions with patients, and with other providers?
 What about the corporate cultures of Integrated Delivery Systems?
 If money matters: How much additional provider income per health plan enrollee or patient will motivate providers? How does this vary by provider type?
 To what extent is the use of Payment Systems to manage health care goods and services dependent on other complementary activities: Provision of complementary services, provision of information, reliance on provider input to design and implement paym…
C. FEE-FOR-SERVICE PAYMENT – PHYSICIANS AND HOSPITALS.
1. Positives:
 Rewards providers for providing all Personal Health Care Goods and Services needed to maximize a positive health status outcome.
2. Negatives:
 May encourage duplicative or unnecessary care.
 When coordination of medical care and communication among multiple providers and provider sites is especially important (For example: for the treatment of people with multiple chronic conditions), Fee for Service encourages providers to think only a…
 In the case of Hospital Per Diems, the danger is that this form of payment encourages unnecessarily long lengths of stay.
 Actual performance in terms of Quality of Care (Processes of Care, Outcomes of Care) is not adequately recognized by the payment method.
D. BUNDLED PAYMENTS/BY PROCEDURE OR CLINICAL CONDITION AND RELATED TREATMENT – PHYSICIANS AND HOSPITALS.
1. Positives:
 Rewards providers who collaborate to review coordination and efficiency of care, rather than each provider acting in isolation and with excessive independence or autonomy.
2. Negatives:
 Because total payment for services is limited for each bundle of services, providers may have an incentive NOT to provide necessary medical goods and services as indicated by the patient’s condition.
 If unaccompanied by additional information on how to improve care and how to avoid unnecessary utilization, the payment method may not be effective in terms of managing utilization and improving quality of care.
 If unaccompanied by resources to support the provision of necessary Social Services, Transportation, etc., the payment method may not be effective.
 Actual performance in terms of Quality of Care (Processes of Care, Outcomes of Care) may not be adequately recognized by the payment method.
 In the case of Physician Capitation: Capitation amounts may be inadequate, or may be based on community utilization averages which ignore the actual clinical needs and characteristics of a Physician’s panel of providers.
E. THE AFFORDABLE CARE ACT OF 2010: HOW IT ENCOURAGED EXPERIMENTS IN PAYMENT.
1. Medicare and Bundled Payment Experiments:
2. Linking Payment and Utilization Management:
Penalties for Readmissions within 30 Days
Penalties for Excessive Hospital Acquired Conditions

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