Payment Methods: How They Work - Urban Institute

HEALTH POLICY CENTER

RESEARCH REPORT

Payment Methods and Benefit Designs: How They Work and How They Work Together to Improve Health Care

Payment Methods: How They Work

Robert A. Berenson

URBAN INSTITUTE

Divvy K. Upadhyay

URBAN INSTITUTE

April 2016 Updated June 10, 2016

Suzanne F. Delbanco

CATALYST FOR PAYMENT REFORM

Roslyn Murray

CATALYST FOR PAYMENT REFORM

ABOUT THE URBAN INSTITUTE The nonprofit Urban Institute is dedicated to elevating the debate on social and economic policy. For nearly five decades, Urban scholars have conducted research and offered evidence-based solutions that improve lives and strengthen communities across a rapidly urbanizing world. Their objective research helps expand opportunities for all, reduce hardship among the most vulnerable, and strengthen the effectiveness of the public sector.

Copyright ? April 2016. Urban Institute. Permission is granted for reproduction of this file, with attribution to the Urban Institute. Cover image by Tim Meko.

Contents

Acknowledgments

vi

Introduction

1

Context, Design, and Operational Issues Affect Payment Method Impact

2

Payment Method Attributes

3

Methods and Analysis

4

Selected Payment Methods

6

Bibliography

7

Fee Schedules for Physicians and Other Health Professionals

8

Key Objectives

9

Strengths

9

Weaknesses

10

Design Choices to Mitigate Weaknesses

11

Compatibility with Other Payment Methods and Benefit Design Options

12

The Focus on Performance Measurement

13

Potential Impact on Provider Prices and Price Increases

13

Primary Care Capitation

14

Key Objectives

14

Strengths

15

Weaknesses

15

Design Choices to Mitigate Weaknesses

16

Compatibility with Other Payment Methods and Benefit Designs

17

The Focus of Performance Measurement

18

Potential Impact on Provider Prices and Price Increases

18

Per Diem Payment to Hospitals for Inpatient Stays

19

Key Objectives

20

Strengths

20

Weaknesses

20

Design Choices to Mitigate Weaknesses

21

Compatibility with Other Payment Methods and Benefit Designs

21

The Focus of Performance Measurement

22

Potential Impact on Providers' Prices and Price Increases

23

Diagnosis Related Groups?Based Payment to Hospitals for Inpatient Stays

24

Background

24

Key Objectives Strengths Weaknesses Design Choices to Mitigate Weaknesses Compatibility with Other Payment Methods and Benefit Designs The Focus of Performance Measurement Potential Impact on Provider Prices and Price Increases

Global Budgets for Hospitals

Key Objectives Strengths Weaknesses Design Choices to Mitigate Weaknesses Compatibility with Other Payment Methods and Benefit Designs The Focus of Performance Measurement Potential Impact on Provider Prices and Price Increases

Bundled Episode Payment

Key Objectives Procedure-Based Bundled Episodes

Strengths Weaknesses Design Choices to Mitigate Weaknesses Condition-Specific Bundled Episodes Strengths Weaknesses Design Choices to Mitigate Weaknesses Compatibility with Other Payment Methods and Benefit Designs The Focus of Performance Measurement Potential Impact on Provider Prices and Price Increases

Global Capitation to an Organization

Key Objectives Strengths Weaknesses Design Choices to Mitigate Weaknesses Compatibility with Other Payment Methods and Benefits Designs The Focus of Performance Measurement Potential Impact on Provider Prices and Price Increases

Shared Savings

IV

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31

32 33 33 34 35 35 36

37

38 39 39 40 41 42 42 42 43 44 44 45

46

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53

CONTENTS

Key Objectives

54

Strengths

54

Weaknesses

55

Design Choices to Mitigate Weaknesses

56

Compatibility with Other Payment Methods and Benefit Designs

57

The Focus of Performance Measurement

58

Potential Impact on Provider Prices and Price Increases

58

Pay-for-Performance

60

Background

60

Key Objectives

61

Strengths

61

Weaknesses

62

Design Choices to Mitigate Weaknesses

63

Compatibility with Other Payment Methods and Benefit Designs

64

Focus of Performance Measurement

65

Potential Impact on Provider Prices and Price Increases

66

Notes

67

References

68

About the Authors

69

Statement of Independence

71

CONTENTS

V

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