Prix fixe menu offers more value for health care payments

The Field Clinic is pleased to present the inaugural guest blog by Dr. David Nash, the Founding Dean of the Jefferson School of Population Health where he is the Dr. Raymond C. and Doris N. Grandon Professor of Health Policy.

My mother prefers restaurants that offer a complete meal for a set price, say, $20. This way, should she choose that option, she knows she’ll have a great experience that includes an appetizer, entrée and dessert, and she’ll know what it’s going to cost before the bill even hits the table.

You could say that when it comes to dining out, my mother prefers the bundled payment system. Smart lady, my mom.

When it comes to paying for health care, I’ll take the prix fixe menu over a la carte every day. It’s a new way of thinking about paying for health care in this country, one that may actually bend the cost curve toward more manageable levels.

The key problems continue unchecked. In the U.S., we spend the most on healthcare among industrialized nations, but we achieve very poor quality results for our money. We currently spend more than $8,000 per person per year on health care, which is more than twice the average of $3,400 per person in other developed nations. Do you feel you’re getting your $8,000 worth? This is all evidence of a payment system that trumps market forces that drive quality and efficiency in most other industries. It perpetuates the misuse of medical care.

As currently constructed, our payment system allows physicians to be paid for volume and intensity of care. They’re not paid to coordinate their activities with other caregivers inside and outside the hospital. Our healthcare payment system is based on the principle of piecework, which essentially means that providers get paid more for providing more healthcare services, often irrespective of evidence to justify them.

The key point is this: fees paid to physicians reward the volume and intensity of the care they provide rather than the value and health outcomes of patients.

Enter bundled payment, an incentive structure designed to align the incentives of all involved. Bundled payment represents the state of the art in leveraging the highest quality care with the least wasteful duplication and variation in medical services.

Bundled episode payments would reimburse hospitals, doctors and other providers, such as nursing homes and home health agencies, a lump sum for all the medical care provided for a specific condition or during a set period of time. Providers that can treat patients for less than the lump sum see a profit, but lose money if care costs more than the bundled payment amount. To me, this is a formula that ensures providers are putting the patient first, with an emphasis on quality and efficiency.

If our broken health care system is ever to move away from the fee-for service system for payment of health care in favor of bundled episode payments, a pretty good indicator of such a shift should be in place this summer.

In January, the Centers for Medicare & Medicaid Services (CMS) announced the health care organizations selected to participate in the Bundled Payments for Care Improvement (BPCI) Initiative. The initiative, authorized by the 2010 Patient Protection and Affordable Care Act, will better align payments for healthcare services delivered for an episode of care, such as heart bypass or hip replacement, rather than having patients pay for several services separately.

Evidence already exists that the bundled payment model is working. Geisinger Health System used to charge for elective coronary-artery bypass graft (CABG) surgery the way most hospitals do: separate bills for the hospitalization, for surgeon and other physician fees and for follow-up care, including care for complications.

Beginning in February, 2006, Geisinger began charging for elective CABG surgery very differently: a single, bundled case rate covers every service the patient needs, starting from his or her visit to the physician who triggered the decision to have surgery through 90 days following the surgery. The bundled rate also covers all related complications, hospital readmissions and follow-up care during that time interval.

Over the program’s first 18 months, Geisinger reported a 21 percent decrease in patients with any complications (from 38 percent to 30 percent), a 44 percent decrease in hospital readmissions within 30 days (from 6.9 percent to 3.8 percent), a 10 percent increase in patients discharged to their homes, and a half-day reduction in length of hospital stay.

These are positive signs that a fair and effective healthcare payment system is evolving that can give us the best and safest results from the most appropriate treatments, based on the best medical evidence, by the right kind of provider at the right time.

-        By David B. Nash, MD, MBA