There is broad agreement that significant reforms are needed to the Fee-for-Service Payment systems that are commonly used today, since they give healthcare providers strong financial incentives to deliver

services to

people, butoften financially penalize providers for delivering

better

services and

improving health

. The two major alternative pay-ment systems currently being discussed are:

•

Episode Payment

, i.e., paying a single price for all of the healthcare services needed by a patient for an entire episode of care (e.g., all of the inpatient and outpatient care they need after having a heart attack); and

•

Comprehensive Care Payment

(also called condition-adjusted capitation, or risk-adjusted global fees), i.e., paying asingle price for all of the services needed by a specific group of people for a fixed period of time (e.g., all of the care neededduring the course of a year by the people who work for a particular employer or by people who have chronic diseases).

(For more information on different healthcare payment methods, see

Better Ways to Pay for Health Care: A Primer on Healthcare Payment Reform

Trying to weigh the pros & cons and pick the “best” payment method is a flawed approach, particularly at this very early stage of healthcare reform. Episode Payments are better for certain kinds of conditions and patients, and Comprehen-sive Care Payments are better for other kinds of conditions and patients, and the best approach is probably using a com- bination of both. When they should be used depends on the characteristics of the cost and quality problems to be solved.

Two Different Kinds of Cost/Quality Problems to be Solved

There are (at least) two different reasons why the cost of treating people with a particular condition may be higher than itneeds to be:

The cost of an episode of care for a particular condition is unnecessarily high and/or there is high varia-tion in the cost and quality of episodes among similar patients and across regions.

For example, the cost of anuncomplicated labor and delivery for a pregnant woman varies dramatically across the country, depending on the rate at which birthing centers or hospitals are used, how frequently labor is induced before 39 weeks gestation, how frequently Cesarean sections are used, etc. Also, pro-grams that report on both hospital costs andquality show wide variations in the costs of common surgeries from hospital to hospital,even after adjusting for case severity andoutcomes.

Episodes occur more frequently thannecessary for a particular conditionand/or the frequency of episodes var-ies significantly among similar pa-tients and across regions.

For example,the type of care that chronic disease patientsreceive in the community can significantly affect the rate at which they are hospitalizedfor exacerbations of their illnesses. Also,research by the Dartmouth Atlas project hasshown wide variations in the frequency of cardiac surgery and other types of proce-dures across the country, with no evidencethat higher frequencies achieve better out-comes for patients.

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PATHS TO HEALTHCAREPAYMENT REFORM

Which HealthcarePayment System is Best?

www.PaymentReform.org www.PaymentReform.org www.PaymentReform.org www.PaymentReform.org

Different Payment Systems Solve Different Cost/Quality Problems

Size/Variation in Frequency of Episodes Per ConditionHighLowLowHighAmount/Variationof CostPer EpisodeEpisode PaymentComprehensive Care Pmt.(or Year-Long Episodes)Fee for ServiceComprehensive Care Pmt.+Episode Payment

Examples:COPD,Congestive Heart FailureExamples:Heart Disease,Back PainExamples:Immunizations,Simple InjuriesExamples:Hip Fractures,Labor & Delivery