Episode payments could be the key to a strong healthcare system

Healthcare payment reform efforts should favor episode-of-care payments (i.e., bundled case rates for major acute interventions and chronic conditions) over global capitation or pay-for-performance options, said University of California at Berkeley economist James Robinson at last week's National Pay for Performance Summit in San Francisco. Providers face too much risk under global capitation systems, and pay-for-performance systems that tie payment only to quality don't always lower costs.

Episode payments, on the other hand, can "encourage care coordination, physician-hospital cooperation and service line efficiency," said Robinson. Under an episode payment system, payment should be defined consistently, incorporate quality measurement and improvement metrics, and create transparency and consumer choice, he suggested.

Detractors of episode payments have cited the potentially detrimental consequences of vertical provider consolidation. However, "episode payment must be conceptualized as a means to expand, not restrict, the organizational and geographic scope of the market," he said. Providers can negotiate episode-based contracts with multiple providers over a wide geographic range, helping patients compare providers and travel. In addition, multihospital systems can tailor facility-specific episode prices to account for facility differences.

A transition to episode payments will be stifled by current public policy and regulation, Robinson said. "We need a Hippocratic Oath for health policy: First, do not ban, tax, fold or spindle efficiency initiatives."

Several episode pilots are currently underway. For example, last year the Integrated Healthcare Association (IHA) began a Bundled Episode of Care pilot in California to examine the feasibility of private-sector episode payments. Initial episode payments used in the pilot cover total knee replacement and coronary artery bypass graft.

To learn more:
- read the Healthcare Finance News article
- here's the IHA summary

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