There is much concern about how much we spend on medical care and how uneven is the quality of care we get, but little attention has been paid to the implications of how we pay medical care providers. The current system of fees for individual services is at the root of both our cost and quality problems. The incentives implicit in a bundled payment covering all the relevant providers involved in an inpatient episode can encourage far more efficiency. If designed appropriately, such a payment approach can also facilitate learning what works best in practice and then changing processes to improve quality. In the long run, this new focus will impact the translation of new research into practice, emphasizing increased efficiency and improved value.
The conceptual arguments in favor of episode-based payments are clear; the details and transition are more challenging. Episode-based payments and bundling are far more complex in the outpatient setting for numerous reasons, so this discussion has focused on inpatient (and similarly intensive and short duration) care. It is easy for payors to “bundle payment” but much harder for independent practitioners and a hospital to figure out how to share risk, rewards, and responsibilities among themselves. With the fear of malpractice in the background, few providers will leap at the opportunity to redesign care in ways that may appear to be “doing less,” so a reform of the liability system must be considered. For a few categories of conditions, such as acute myocardial infarction, there is a reasonable consensus on outcomes, such as death within 30 days, that are reasonably well measured. For most patients, such as those having elective surgery, procedure-associated death should be a rare or never event. From the patient perspective, outcomes matter most; not only should each professional do his or her job excellently, but the overall processes of the team members involved in the care must facilitate “hand-offs,” optimal choices of treatments, and continuous improvement. Developing agreed-upon outcome measures incorporating both professional opinion on what can be measured and patient values on what is important will take time and resources. The model proposed here focuses on quality measures across groups of similar patients, with ample opportunity for increased risk adjustment as we learn about relevant risk factors. Without having to score each case as a “success or failure” one can use robust statistical approaches that account for random variation while seeking to detect consistently better than expected performance. None of these issues are trivial, but the best way to address them is to begin with volunteering organizations, feasible target conditions, and demonstrations.
Episode-based payment creates incentives for physicians to focus on the best ways to manage resources during an episode of illness or care; the CDT creates the economic unit in which such incentives can be turned into action. (The issues are somewhat more complicated in managing an ongoing chronic illness involving a wide range of providers who may not normally work together and often requiring patient cooperation in adherence to various treatment regimens. Thus, different incentives and structures are needed for a relatively brief episode of care focused on an inpatient stay and for the ongoing management of illness. The latter are discussed in much more detail in my comprehensive proposal [5
Episode-based payment allows the appropriate compensation for the time professionals need to effectively coordinate services. Payment approaches within the new CDT may vary widely. Surgeons may still be paid per procedure and anesthesiologists by the time in the operating room, while the hospitalists involved in the postoperative care may be paid by the shift. The CDT may hire patient navigators and technical support personnel to efficiently coordinate all the members of the team or optimize the use of various implants and instrumentation. Payment rates, moreover, might be adjusted by workload to better use scarce resources, such as encouraging the use of operating room time during weekends.
The bundled payment that includes not just professional fees, moreover, creates incentives to redesign workflow within the inpatient stay and at other times during the episode. This can range from relatively simple things, such as standard preoperative protocols and drug regimens, to agreeing on a smaller number of implants or a preferred formulary. While one cannot assume all imaging performed by referring clinicians meets the CDT’s standards, many may be perfectly adequate. CDTs might even train referring clinicians in the techniques needed to reduce the preadmission workup process—a savings not only in resources but also in time and risk to the patient.
Episode-based payment must be designed to avoid incentives to skimp on care to increase profits to the CDT. Quality concerns, however, are not particularly associated with episode-based payment, as illustrated by the tainted medications derived from Chinese manufacturers [1
]. There are always incentives for producers to skimp on quality if it is not well monitored and if the losses due to discovery are small relative to the gains for the badly behaving producer. If we no longer assume more is necessarily better, then paying for episodes means attention will shift to the outcomes of episodes, a measure about which patients care, rather than to the processes and inputs, about which they have little technical knowledge. Using independent medical evaluators outside the CDTs to assess whether surgery is needed offers a useful approach. The independent medical evaluators may also recommend which CDTs have the best outcomes based on both risk-adjusted outcome measures and reports gathered from the patients seen.
Turning our focus to outcomes will initially be a challenge. Few meaningful measures are routinely captured in administrative data other than events that should rarely occur, such as death or serious complications. In most instances, medical and surgical interventions are not intended to postpone death but to enhance function and the quality of life. These often require direct assessment by the patients themselves. Such assessments should be viewed as evaluating not the specific professionals involved but the ability of the whole team to achieve the outcomes desired by the patient and should recognize patients may differ in what they think is important. Automobiles are not evaluated in the market solely based on “hard end points,” such as their crashworthiness and miles per gallon; customers have varying preferences for style, reliability, and performance. Highly unsafe cars should be kept off the road, but there is room for a great deal of individuality in many other aspects. Just as Road and Track and Consumer Reports may rate the same cars differently, patients should be able to choose among assessment schemes that match their own preferences for certainty, performance, and processes.
Most healthcare professionals simply want to achieve the best outcomes for their patients, but the fear of malpractice liability may lead some to perform unnecessary tests and to be uneasy about the prospect of experimenting with new ways of organizing and delivering care. Episode-based payments to CDTs should be combined with reform of the malpractice liability system that benefits patients, providers, and even attorneys.
In brief, if an injury occurs due to an error in the care of a patient, there should be a quick resolution with an apology by members of a CDT and compensation paid to the patient. Negligence will not need to be proven; the payment is set through an administrative determination of a preventable adverse event and the extent of the injury sustained. (Medical care often involves inherent risks; no compensation would be provided for unfortunate outcomes without evidence of an error.) Plaintiffs’ attorneys would simply collect and document the data supporting the claim and probably be paid by the hour. Most CDTs would self-insure for these common and relatively small claims. A series of similar claims paid by the CDT without evidence it attempted to improve its processes, however, could result in a second-tier suit proving “corporate negligence” with a much larger potential award. That award would be shared with those patients (and their attorneys) involved in the earlier claims who implicitly granted access to their data. In this reformed system, patients would receive just compensation for errors and CDTs would have incentives to learn from previous mistakes, two legitimate arguments of those defending the current system. Physicians would not be charged with negligence for what was merely an error, even if an avoidable one, and far less would be spent on litigation, legitimate arguments of those opposing the current system.
Episode-based payment creates immediate economic incentives for teams to use resources more efficiently. More important for the long term, it changes the incentives for biomedical innovators. The current incentive is to develop new medications, devices, and procedures with some promise of improved quality of care, irrespective of cost. For some innovations, their attractiveness is even enhanced by additional professional fees associated with their use; if physicians can earn an additional fee for the procedure accompanying the biologic or device, they effectively become part of the marketing team of the manufacturer. In contrast, episode-based payment will lead clinicians to consider all costs in relation to the enhancement in quality. The most attractive innovations will be those improving quality and reducing cost, even if this means reducing what are now billable services. Other innovations may have no measurable effect on quality but will reduce costs; for instance, new technologies may allow lower-skilled workers to substitute for some of the tasks highly paid clinicians now do. With the cost of the device bundled into the payment, surgeons will demand evidence that “innovative” devices truly are better. Device manufacturers will find, unless they have breakthrough technology with demonstrably better results, they will be financially better off lowering the costs of tried-and-true devices and gaining market share. The new incentives will, therefore, alter the mix of technological innovations entering the healthcare system, slowing the long-term rate of growth in expenditures.
Reform of the healthcare system needs to go beyond strategies that simply provide more people with insurance coverage that fosters inefficiency, poor quality through disincentives for coordination, and mindless cost-containment efforts through fee reductions. Instead, reforms should focus on improving the payment system to appropriately align incentives and facilitate clinicians in being the best professionals they can be.
The charge for the Association of Bone and Joint Surgeons/C.T. Brighton Workshop is to discuss where we are now, where we need to go, and how to get there. Nearly all observers of the US healthcare system agree it fails to cover a substantial fraction of the population and yet is more expensive than all other systems in the developed world. Most agree, while the quality of care in some instances is outstanding, it is not as good as it can be. The rate of growth in expenditures is unsustainable in the long run and something needs to be done to slow this. Explicit rationing of services is politically unacceptable. Reductions in provider payments yield short-term cost containment, but many believe the current system merely adapts by increasing the use of services and procedures, further fueling expenditure growth while devaluing physician effort and driving many clinicians out of practice.
Fragmented payment to individual providers for their own services is one of the causes of this sorry situation. A solution for inpatient and similar care that can work in the US environment is to bundle payments around an episode of care. This new payment will be made to a CDT composed of physicians, hospitals, and other professionals who will provide the necessary services. They will decide how to pay themselves and organize care to both increase quality and efficiency. The CDTs will demand better information on patient outcomes and learn from other CDTs how to constantly improve. Biomedical innovation will shift from being cost increasing to being value enhancing.
The changes needed to move to bundled payments are within reach. Some existing federal and state legislation will need to be modified to allow the creation of CDTs. Bundled payment could be done without reform of liability laws, but enacting the type of malpractice reform suggested above can help reassure physicians that well-intended innovation will not unduly expose them to liability claims. The underlying data to begin the implementation process are available, but incentives are needed to pool the data from Medicare and other payors. Medicare has begun some relevant demonstration projects and these should be expanded. Creating the new teams will require substantial effort, so there should be clear guidance from national leaders that the payment system will be changing and incentives provided for voluntary early adopters. For example, new CDTs might be guaranteed payments no less than their present Medicare Part A and B payments with exemptions from any future fee reductions, but the ability for their payments to be adjusted upwards along with everyone else. Academic medical centers might avoid their troublesome service-by-service documentation requirements if they transformed their practice plans into CDTs.
A shift to episode-based payment will require a different way of thinking about how care is provided and professionals are paid. It will require the development of functioning teams that replace totally independent economic entities. It offers, however, an economic basis for creative approaches to medical care delivery that are based on what works, yet adaptive to patient needs and scientific advances. Not all the details of such a fundamental change can be worked out in advance, but we cannot wait for the perfect solution to our rising healthcare costs.