Economist says episode payments will bend healthcare cost

Episode payments – case rates for major acute interventions and chronic conditions – are the best approach for payment reform, according to a University of California economist.

"We can't, as a country, bend the cost curve if we don't go to where the dollars are," said James Robinson, Kaiser Permanente Professor of Health Economics at UC Berkeley's School of Public Health. Robinson was the closing keynote speaker at the 5th National Pay for Performance Summit last week.

The healthcare industry needs to better manage the cost of cancer drugs, implantable devices and imaging, which is where most of the cost increases can be found, Robinson said.

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"We need to focus attention on where the dollars are," he said.

Global capitation burdens providers with too much risk, and pay for performance – if focused on quality only – doesn't necessarily help with cost, said Robinson. While fee-for-service rewards volume, it can be useful "around the edges" of episodes and case rates, he said.

Episode payment should define the payment, have quality measurement and improvement metrics in place and create transparency and consumer choice, Robinson said.

The Integrated Healthcare Association has initiated a Bundled Episode of Care pilot for a Preferred Provider Organization product. A bundled payment is negotiated for each health plan and hospital/physician entity, using a consistent definition of episode payment.

Robinson addressed the concerns surrounding episode payment, including the unintended consequence of provider consolidation, with hospitals squeezing out physician-owned ambulatory competitors.

"Episode payment must be conceptualized as a means to expand, not restrict, the organizational and geographic scope of the market," he said.

Payers can contract on an episode basis with a wide geographic range of providers and facilitate consumer comparison and travel. Multi-hospital systems should quote different episode prices for different facilities – to the extent that they have differences, Robinson said.

Another concern is fear of too little or too much consumer choice. "Episode payment for providers requires last dollar rather than first dollar cost sharing for patients," he said, noting that the effect brings down premiums.

Much public policy and regulation impedes a transition to episode payment, Robinson said.

"We need a Hippocratic Oath for health policy: First, do not ban, tax, fold or spindle efficiency initiatives," he said. "Episode payment is an important initiative that can encourage care coordination, physician-hospital cooperation and service line efficiency."

"Payment reform is essential to healthcare reform. Public policy needs to support and not impede change," he said.