Lecture 9 - Paying Providers: Budgets, Capitation, Case-Based Payments

Question 1

What are the 3 main objectives of provider payment methods?

Answer 1

1. Cost control
2. Improve technical efficiency (given inputs, maximise health outputs). Elimitate waste
3. Improve quality

Question 2

Explain the regulation, purchasing and delivery structure of England pre 1990s.

Answer 2

• Regulation, insurer and provider all controlled by the government
• No competition in the provider sector
• Critiqued as bureaucratic

Question 3

Explain the regulation, purchasing and delivery structure of the UK now.

Answer 3

• Abandoned competition to collaboration
• Stopped the purchaser provider split. Provider and purchaser are somewhat integrated.
• Creating an integrated care system; providers are being encouraged to collectively contract with regional purchasing authority that is responsible for a capitated budget

Question 4

Explain the regulation, purchasing and delivery structure of Canada.

Answer 4

• Purchaser provider split
• Regulator and insurer are still integrated
• Providers, especially primary care, are not owned by the government to create competition. The providers contract to provide services
• Hospitals are still owned by the government

Question 5

Explain the regulation, purchasing and delivery structure of the US.

Answer 5

• Regulation is split from insurer and provider
• Health Maintenance Organisations (HMOs) in the US contract with specific providers. Patients have to use the providers associated with their care plan or else they incurr a high user cost
• Shared accountability between insurer and provider

Question 6

Explain the regulation, purchasing and delivery structure of the Netherlands

Answer 6

• Regulation, purchaser and provider are all independent
• Patients have the freedom to choose their providers and insurers which creates competition in the market
• Insurers are private organisations but are required to oeprate on a non-profit basis to ensure accessible and equitable healthcare services
• Government regulates prices, sets terms for insurers and determines resource allocation to insurers

Question 7

What are the 3 types of healthcare system structures? Define each of them including what type of provider payments they can use.

Answer 7

1. Hierarchy structure: clear organisational structure with a defined chain of command and levels of authority. Top-down approach. Payment via salary, budget, mix fo budget and activity-related payments
2. Market structure: introduces market principles into healthcare delivery including competition amoung providers. There is private sector participation and a purchaser-provider split. Payments via activity-related payments.
3. Network structure: emphases collaboration and coordination among various entities. There is information sharing and patient-centred care. Payments via budget/activity-related payments, and inter-provider contracting

Question 8

In what circumstances will competition enhance value?

Answer 8

When based on price and quality, and consumers are informed and mobile

NOT based on risk selection or provider fraud

Question 9

What are the pros of a purchaser provider split? (8)

Answer 9

1. Competition and Efficiency: By separating the purchasing and providing functions, the system introduces competition among healthcare providers. Providers compete for contracts from purchasers, creating incentives for efficiency, cost-effectiveness, and quality improvement.
2. Choice and Consumer Empowerment: A purchaser-provider split allows patients (consumers) to have more choices in selecting their healthcare providers. Patients can choose among different providers competing for contracts, fostering a more consumer-centric approach.
3. Market Principles and Innovation: The split aligns with market-oriented principles, emphasizing the benefits of competition, innovation, and entrepreneurship in healthcare delivery. Providers may be incentivized to innovate and improve their services to attract purchasers.
4. Clear Accountability: The separation of roles creates clear lines of accountability. Purchasers are responsible for ensuring value for money and quality of care, while providers are responsible for delivering services according to agreed-upon standards.
5. Flexibility and Adaptability: The split allows for flexibility in adapting to changing healthcare needs. Purchasers can adjust contracts and choose providers based on the evolving health requirements of the population.
6. Performance Measurement and Quality Improvement: The split enables purchasers to focus on outcome-based performance measurement. This emphasis on outcomes can drive providers to deliver high-quality care and achieve better health outcomes for patients.
7. Resource Allocation and Budget Management: Separating the roles helps manage budgets effectively. Purchasers can allocate resources strategically, negotiate contracts based on cost and quality, and adjust budgets to address specific health priorities.
8. Encouraging a Mix of Providers: The purchaser-provider split encourages a mix of providers, including both public and private entities. This diversity can contribute to a more competitive and responsive healthcare landscape.

Question 10

What are the 6 dimensions of provider payments?

Answer 10

1. Payment objective (cost, efficiency, quality)
2. Payee (to organisation, service or patient)
3. Breadth of payment (what to include/exclude)
4. Allocation of financial risk (purchaser or provider)
5. Timing of payment (prospective or retrospective)
6. Size of payment (large, small, fixed or variable)

Question 11

What are the 4 main types of provider payment mechanisms?

Answer 11

1. FFS - unit of payment is the unit of service
2. Capitation - unit of payment is the number of persons
3. Case-mix - admissions by hospital category
4. Global/line item budget - global budget gives lump sum to department, line item allocates funds to specific categories

Note: DRGs and budgets are only for paying hospitals/institutions

Question 12

Which payment mechanism gives payers the highest risk? Which one gives providers the highest risk?

Answer 12

Payers - FFS
Providers - Budget/Capitation

Question 13

What is capitation?

Answer 13

Fixed amount per person for a defined package of health services or over a defined period of time

Question 14

What is the pro and con of using endogenous variables to risk adjust payment?

Answer 14

Pro: more closely reflect utilisation

Con: more gameable since they are mostly under the control of the provider because they control diagnosis

Question 15

What is the pro and con of using exogenous variables to risk adjust payment?

Answer 15

Pro: better cost control since reducing incentive to over treat

Con: weaker risk adjustment since they might not capture the actual complexity of a case

Question 16

What are the positive impacts of capitation? (2)

Answer 16

1) removed economic incentie to over-provide

2) may promote cost-effective care, including preventative care

Question 17

What are the negative impacts of capitation? (4)

Answer 17

1) providers are financially motivated to limit the provision of nessecary care to control costs
2) could lead to quality skimping - spending less time with patients, using less expensive but potentially less effective treatments
3) cost shifting - moving high cost cases to other providers
4) cream skimming (risk selection) - select healthier patients

Question 18

What are case-mix payments?

Answer 18

Provider is paid a fixed amount per case, regardless of the actual types of quantities of services provided

Question 19

What is yardstick competition?

Answer 19

Compare costs across providers, pay average cost across all regions, groups with high costs have incentive to reduce costs. Promotes efficiency.

Use when there is no direct competition between providers (e.g. local monopoly)

Question 20

What are the assumptions for case-mix payments?

Answer 20

• Costs amoung cases are similar; there is little heterogeneity within case groups
• the information of the characteristics of the patient is accurate

Question 21

What are the 3 determinants of hospital costs as related to DRGs?

Answer 21

1) patient variables; gender, age, diagnosis, severity
2) medical and management variables; technologies, human resource use
3) structural variables at the hospital/regional/national level; size, teaching status, urbanity

Question 22

Why do structural variables need to be taken into account when determining DRG reimbursement?

Answer 22

Because large hospitals are often more efficiency with lower costs because of economies of scale.

Teaching hospitals have higher costs.

Question 23

How can hospitals decrease costs/increase revenue when being paid under DRGs? (3)

Answer 23

1) reduce length of stay (LoS)
2) reduce costs related to processes, personnel and use cheaper technologies
3) increase revenue via seeing more patients, readmissions, up-coding and negoatiating extra payments

Question 24

What should you do if there is a risk that providers may skimp on services?

Answer 24

Exclude them from DRGs

e.g. chemotherapy, renal dialysis, childbirth

Question 25

What are the postitive incentives of case-based payments?

Answer 25

• removes economic incentive to over-provide services for a single patient
• possibility to increase quality and efficiency
• easy to operate once established
• may result in specialisation since hositals become more efficient is specialised for a particular service

Question 26

What how can case-based payments improve quality and efficiency?

Answer 26

1. Focus on Severity, Not Volume:

Shifting Priorities: By reimbursing based on patient complexity (DRG category), case-based payments move away from a system that rewards simply providing more services. This can incentivize providers to focus on delivering the most appropriate care for a patient’s specific needs, potentially leading to better outcomes.

2. Potential for Efficiency Gains:

Resource Management: Since the reimbursement is fixed for a DRG, providers have an incentive to find more efficient ways to deliver the necessary care within that budget. This could involve optimizing staffing, reducing unnecessary tests or procedures, and streamlining treatment protocols.

3. Investment in Quality Measures:

Focus on Outcomes: Some case-based payment systems might incorporate quality measures into the DRG assignment or adjust reimbursement based on patient outcomes. This incentivizes providers to invest in evidence-based practices and strive for better clinical results.

Question 27

What are the negative incentives of case-based payments?

Answer 27

• large upfront investment to set up
• possibility for up-coding and fraud
• cost shifting
• cream-skimming
• increase unnessecary admissions (increases cost) and readmissions (decreases quality)
• quality skimping
• if payments are low it may slow adoption of new technology
• hospital specialisation is bad if it means people can’t access the services they need

Question 28

What risks are borne by the payer under global budgets, capitation, DRGs and FFS

Answer 28

Global budget: no risk
Capitation: Services not capitated
DRGs: risk of number of cases and the case severity classification
FFS: all risk borne by payer

Question 29

What risks are borne by the provider under global budgets, capitation, DRGs and FFS?

Answer 29

Global budget: all risk
Capitation: all risk borne by provider up to threshold
DRGs: risk of cost of treatment for a given case
FFS: no risk

Question 30

What are the benefits of yardstick competition under DRGs?

Answer 30

Focus on Efficiency: By using DRGs to categorize patients and comparing costs across providers for similar cases, yardstick competition incentivizes hospitals to become more efficient in delivering care within a DRG.

Cost Control: If a hospital consistently exceeds the average cost for treating patients within a DRG, it might receive lower reimbursement in a yardstick competition system. This pressure to stay within the benchmark can lead to cost control measures.

Question 31

How do England, France and Germany and the Netherlands risk adjust their DRGs?

Answer 31

England: use unbundled HRGs for services such as chemotherapy, renal dialysis and high cost drugs. These are commissioned and priced on an individual basis.

France: services are priced and reimbursed based on separate prices. Also have additional payments for ICU, emergency care and high-cost drugs

Germany: supplementary payments for chemotherapy, radiotherapy, renal dialysis, high cost drugs

Netherlands: no payments for specific high-cost services, but have innovation-related payment for drugs.

All countries have innovation-related payments.

Question 32

What does the way forward look like for paying providers?

Answer 32

• reimburse for deliverying specific outcomes instead of focusing on treatment/inputs
• allow for different payment approaches where people’s care needs differ
• create structure and incentives for provider collaboration to promote integrated care
• need innovative financing mechanisms for digital health services

Question 33

What type of payment mechanism promotes integrated care?

Answer 33

Bundled payments

Question 34

What are bundled payments?

Answer 34

There is no uniform definition

Question 35

Explain the Dutch SELFIE program.

Answer 35

Have a diabetes bundle and a frail elderly payment bundles

• Traditional DRG Shortcoming - Fragmented Care: Traditional DRG (diagnosis-related group) based hospital payments might not incentivize collaboration between different healthcare providers involved in managing a chronic condition.

SELFIE approach
* Bundled Payment for Full Care Pathway: This program establishes a bundled payment for the entire episode of care for a patient with a specific chronic condition within a predefined timeframe (e.g., one year for diabetes).
* Participating Providers Share the Bundle: Hospitals, rehabilitation centers, outpatient clinics, and other providers involved in the patient’s care pathway share the bundled payment collaboratively.
* Financial Incentives for Coordination: The program incentivizes all providers involved to collaborate and deliver efficient, high-quality care within the set budget. This could involve:
o Avoiding unnecessary readmissions or complications.
o Implementing preventive measures.
o Utilizing telehealth or remote monitoring technologies.

Benefits of SELFIE:
* Focus on Long-Term Outcomes: By taking a longer-term view of care, SELFIE encourages providers to manage the chronic condition effectively to prevent complications and improve overall patient health.
* Collaboration and Integration: The program financially incentivizes collaboration between different healthcare providers involved in a patient’s care, potentially leading to more integrated care.
* Potential Cost Savings: By focusing on efficiency and preventing complications, the program has the potential to generate cost savings for the healthcare system in the long run.

Question 36

How can an ageing population drive healthcare costs?

Answer 36

• Duplication of services
• Multiple contacts with multiple different providers
• Significant fragmentation; competition can drive fragmentation
• Higher expenses (due to duplication)