Reimbursement and incentives Flashcards
Difference in contracted and integrated providers
Contracted providers typical in social insurance systems, where the payer and the hc provider are separate entities
Integrated providers are typical in tax-based system, where e.g. the central government is often responsible of both hc financing and provision
What might the chosen reimbursement strategy depend on?
- type of provider (e.g. hospital, primary care, long-term care etc)
- ownership (private vs public)
- whether there’s a contracted or integrated provider
Examples of production functions that reimbursement could be based on
Inputs: Reimbursement for resources needed, e.g. the number of people employed in a facility, wages/salaries that need to be paid, capital
Process/Activities: Reimbursement of different types of services, e.g. X rays, lab tests…
Output: Reimbursement of number of patients treated, e.g. reimbursement for each patient with a particular condition, DRGs
Outcome: Reimbursement of health improvements achieved, change in health state, e.g. survival, QoL
Traditional payment mechanisms vs new type of mechanisms, examples
Traditional: budget, salaries, bed-days, FFS
New: per case/episode - disease-related groups, capitation, P4P, mixed payments
In which setting is capitation primarily used?
Primary care
What does bed-days payment mechanism incentive?
Longer hospital stay (increased inpatient services)
Types of incentives, examples
- Financial
- Professional (promotion, status)
- Peer review/control (sometimes simply making data on performance public incentives a change in behaviour, related to reputation)
- practice culture/ethics (e.g. culture of not treating healthy patients)
(different people have different sensitivity to various incentive types)
Antitrust policies?
- mainly affect private providers
- aim to prevent monopoly power/aim to retain competition
Antitrust rules prohibit agreements between market operators that would restrict competition, and the abuse of dominance. Competition encourages companies to offer consumers goods and services at the most favourable terms. It encourages efficiency and innovation and reduces prices.
(e.g. if there are several providers in the area and they are not allowed to merge)
New Public Management
introducing market like systems (competition, freedom of choice) into public healthcare –> aim to improve efficiency and quality, but there are concerns about equity
-introduction of neoliberal ideas/systems into healthcare
Capital controls
government agencies controlling investments (e.g. controlling how resources are used for expansion; so the government can limit the number of beds a provider is allowed to have based on the estimated need)
- example: certificate of need regulations
Explain what is meant by regulatory policy?
Regulation refers to the use of nonmarket means to address:
- Quantity of services
- Price of services
- Quality of services
- Distribution of services (equity in utilization)
- Control of establishment of new services
e.g. the government can prevent establishment of new service providers if it is determined that the supply of a particular service is already sufficient
Rate regulation aka
price regulation
Which sector has been the main object of rate regulation?
the hospital sector
In tax-based systems with public ownership the government can exercise control over costs through:
Investment decisions, i.e. financial resource allocation
Describe the shift in rate regulation and reimbursement within the hospital sector which occurred in the 80ies (US)
In the 1960’s and 1970’s payment for services were usually on a
retrospective basis (FFS-principle), for systems with private/social insurance; and
prospective basis (budget), for systems with tax-financing.
Prospective reimbursement, adopted by Medicare in the US (1983), marked an important turning point in regulatory efforts to contain the growth of hospital costs in many countries. (Prospective reimbursement means that the episode payment/price per episode is predetermined, but the payment is then made afterwards, corresponding to the number of episodes that have been dealt with
What might be the ‘side effects’ of capital controls such as the certificate of need regulation
The regulation is mostly focused on equippment, not staff. So hospitals which are not allowed to expand (e.g. not allowed to add more beds), might for example hire more nurses per bed, which contributes to a quicker turn around of patients, which means overall they’re able to admit more patients)
- i.e. CON may cause hospital to substitute other inputs for capital (rather than obtaining new capital such as beds and facilities, the hospital might add new services or increase staffing)
Two-party health care market model?
Describes the situation in which households and healthcare providers have a direct relationships (OOP payments and treatment provision)
Prospective reimbursement means:
prices have been predifned, payment is made based on the number of cases handled at a certain price
Examples of third-party payers
- private insurance providers
- gov authorities
- social insurance funds
Incentives/consequences of budget or ‘block grants’
effective cost containment, low productivity, and low dynamic efficiency, large scope for internal goals to be achieved (budget maximization), although could include indicative volume
How are the sizes of budgets/block grants typically determined?
budget mostly determined on historical costs (e.g. how much were the costs last year + account for inflation) –> but historic costs might not match the current costs well, and they do not account for advancements in technology
Incentives/consequences of salaries
effective cost containment, low productivity, and low dynamic efficiency
Dynamic efficiency
the concept of dynamic efficiency refers to resource allocation over time to achieve a stage where it is not possible to increase welfare by any reallocation across players in different time periods
Incentives/consequences of bed-day payments
lower patient turnover and prolong lengths of stay
Incentives/consequences of FFS
incentives to raise quantity, quality, and prices of services provided, problem with cost containment, non-price competition, expensive new medical technologies
(fees are set prospectively, however a provider can claim however many services they deemed appropriate/necessary for a particular patient)
Incentives/consequences of payments per case/episode
constraining providers’ incentive to increase service volumes (eg. lab.tests),. Incentives to increase turnover (reduce average length of stay), DRG-creep
- could potentially lead to lower quality services because providers strive for a large turnover - but the ‘outcome-related’ bundles help mitigate that to an extent (Bundled payment: longer episode - outcome related; value-based care)
DRG creep
manipulating the system by making diagnoses which are known to have higher price per episode
Incentives/consequences of capitation
cost containment, equal allocation of resources, problem with access, “spill-over”-effects (higher referrals to specialist services
- capitation does not give any incentive to actually see the patient
(risk selection if listings not weighted/risk adjusted)
Incentives/consequences of pay for performance
the effects varies, important to set the criteria, complex to deploy/standardize
(P4P usually comprises a very small proportion of payment to hospitals, cca 5%)
Incentives/consequences of mixed systems
little experience, removes or diminish the strong incentives, counter-balance incentives from different methods
How can prospective payments act as a cost containment policy?
Under retrospective payment, a hospital submitted its bill to Medicare (or any third party insurer) after the care had been given and the costs to the hospital were known. Retrospective payment allowed the hospitals to recover their expenses.
Prospective payment system (PPS) sets payment rates prior to the period for which care is given. By setting a fixed reimbursement level per admission, prospective payment provides economic incentives to conserve on the use of input resources (only use the necessary services/services that truly add value)
Diagnostic related groups (DRGs)
A classification system of hospital cases into one of originally 467 groups (US)
DRGs are assigned by a “grouper” program based on:
- ICD (International Classification of Diseases) diagnoses
- associated Procedures (mainly surgical) (keep in mind that the prices of procedures are national/varied worldwide, so countries who utilise DRGs tend to develop their own groupations)
- Age/sex
- The presence of complications or comorbidities
- Discharge status
Principle of classification:
Clinical coherent (major diagnostic groups)
Same level of resource use
Purpose of DRGs
- Benchmarking of utilization and quality (Benchmarking = comparison against best practice)
- Improve the accuracy of mainly inpatient hospital payments by using hospital costs rather than charges or budgets to set rates and reimburse
- Adjust payment to recognize better the severity of illness and the cost of treating patients by increasing payment for some services and decreasing payment for others
DRGs world-wide diffusion:
- Central tool for prospective reimbursement of acute hospital in many countries
- Used for both reimbursement and analytical tool (bechmarking)
(many countries started with US cost wights when they initially introduced Disease Related Groups, but then with time adapted them based on their national cost data (more accurate))
How can hospital revenue in a DRG-based funding system be calculated?
Revenue = Quantity x Price
Quantity - number and type of patients treated (patients described by DRG)
Prices - calculated by comparing DRG costs across hospitals
EQ5D dimensions
EQ5D is a standardised measure of health-related QoL, comprises 5 dimensions: mobility, self-care, usual activities, pain/discomfort and anxiety/depression
Capitation principles (primary health services)
- Per inhabitant
- Adjusted for age and gender
- Adjusted for socioeconomic and demographic indicators
- Adjusted for clinical conditions
*older age and being female associated with higher health needs
* a listing of a 30 y.o. man and 80 y.o. woman won’t be reimbursed the same
Purpose of risk adjustment in capitation
risk adjustment: used for setting capitation rates, insurance premiums and for appropriately distributing health care resources within large health systems.
- prevents selection based on risk
- protects providers with higher numbers of high-risk individuals listed
(Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services.)
Risk factors are taken into consideration to come up with a:
Risk score
Adjusted clinical groups (ACG)
The ACG system quantifies morbidity by grouping individuals based on their age and gender and all medical diagnoses that have been recorded over a defined period of time, typically one year.
(they are expected to have similar consumption of healthcare resources)
Care Need Index (CNI)
CNI is a tool that uses socio-economic conditions to identify the risk of health. Among other things, it can be used by regions as support when calculating healthcare compensation.
The socio-economic variables covered by the CNI are: (Care Need Index)
- Age over 65 and living alone
- Born abroad (Eastern Europe, Asia, Africa and South America)
- Unemployed or in labour market support 16-64 years
- Single parent with children 17 years or younger
- Person one year or older who moved into the area
- Low-educated 25-64 years
- Age younger than five years
International Classification of Disease
ICD serves a broad range of uses globally and provides critical knowledge on the extent, causes and consequences of human disease and death worldwide via data that is reported and coded with the ICD. Clinical terms coded with ICD are the main basis for health recording and statistics on disease in primary, secondary and tertiary care, as well as on cause of death certificates. These data and statistics support payment systems, service planning, administration of quality and safety, and health services research. Diagnostic guidance linked to categories of ICD also standardizes data collection and enables large scale research.
For more than a century, the International Classification of Diseases (ICD) has been the basis for comparable statistics on causes of mortality and morbidity between places and over time. Originating in the 19th century, the latest version of the ICD, ICD-11, was adopted by the 72nd World Health Assembly in 2019 and came into effect on 1st January 2022.
Describe the financial risk of different reimbursement systems to providers and purchases
- the newer reimbursment models are associated with increased transfer of risk to provider
Reimbursement systems ranked from highest to lowest payer risk (opposite is true from the provider perspective): per item, per diem, DRG, episode of care, capitation
Cost per DRG-point in a particular country are likely to be:
Varied - costs for the same DRG are usually different in different parts of a country (average calculated?)
Funding objectives:
- Control overall expenditure
- Ensure fair reimbursement (equal pay for equal work)
- Incentivise efficiency
- Improve quality
Medicare’s prospective payment system (predetermined how much the provider will get for a specific DRG) - effects on hospital legth of stay? And change in ‘complexity’?
continual and long lasting decreases of hospital stay
Another observed change following the onset of Medicare’s PPS has been the increase in common case-mix indexes. A case-mix index is a numerical measure of the assortment of patient cases treated by a given hospital so that a higher index value indicates a greater average degree of complexity of the cases and consequently a greater need for input resources. (coding as more complex diagnoses??)
Critical assessment of FFS, capitation and salary reimbursement strategies
”There are many mechanisms for paying physicians; some
are good and same are bad. The three worst are fee-for-
service, capitation and salary. Fee-for-service rewards the
provision of inappropriate services, the fraudulent upcoding
of visits and procedures, and the churning of ”ping-pong”
referrals among specialists. Capitation rewards the denial
of appropriate services, the dumping of the chronically ill
and a narrow scope of practice that refers out every
timeconsuming patient. Salary undermines productivity,
condones on-the-job leisure, and foster a bureaucratic
mentality in which every procedure is someone else’s
problem.”
