Provider payment strategies to improve health

Value-based provider payment: towards a theoretically preferred design

The case for improving health is related, among many things, with the incentive structure of the whole system (people, professionals and providers). If we focus our aim towards providers, then we need to reassess current flaws in the system, and ask what do we have to do. A new article tries to address these issues.

In order to tackle the problems related to current payment methods, worldwide, policymakers and purchasers of care are exploring alternative payment strategies to help steering health care systems towards value . A well-known endeavour in this regard is pay-for-performance (P4P), in which providers are explicitly rewarded for ‘doing a better job’. Although P4P is an appealing idea, explicit financial incentives for value should in principle be used only modestly in provider payment methods because of the multitasking problem. Therefore, it is not surprising that in practice, the majority of provider revenues (typically referred to as the base payment) is not explicitly linked to value. This base payment, however, does create implicit (dis)incentives for value, because each payment method influences providers’ behaviour through incentives.

The article reflects a conceptual framework of key components and design features of a theoretically preferred Value Based Payment method. And the key message is:

We conclude that value is ideally conceptualised as a multifaceted concept, comprising not only high quality of care at the lowest possible costs but also efficient cooperation, innovation and health promotion. Second, starting from these value dimensions, we derived various design features of a theoretically preferred VBP model. We conclude that in order to stimulate value in a broad sense, the payment should consist of two main components that must be carefully designed. The first component is a risk-adjusted global base payment with risk-sharing elements paid to a multidisciplinary provider group for the provision of (virtually) the full continuum of care to a certain population. The second component is a relatively low-powered variable payment that explicitly rewards aspects of value that can be adequately measured.

I fully agree with what they say. Close politicians and officials should take this message into consideration regarding the next primary care physicians' strike, and forget the current confusing approach.

Norman Rockwell 

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The priceless conundrum in healthcare

Pricing the Priceless: A Health Care Conundrum

Allocating resources in health care is a pivotal taks and three tools are used to solve it: market, government and professionalism. Briefly, in the market, prices paid would try to reflect information needed to take a decision for the supply side and demand side (hypotetically). Government allocates resources according to information of a benevolent ruler (biased and incomplete information). Professionals decide over the need of care according to "rules and guidelines" and specific patient situation (hypotetically).
As you may imagine, all these three approaches are used everyday in every health system in the world, and unfortunately they are imperfect, basically due to asymetric and incomplete information on one side, and incentives on the other.
Joseph Newhouse wrote a book fifteen years ago, that summarized many of these conundrums. The first is that we don't find prices, we find "administered prices" in health care, those set by insurers (private and public), and:

Setting administered prices is inevitably fraught with error, and because of lags in adapting to technological change, the extent of the error increases as pricing systems age.

This is reason why today we use the term payment systems instead of pricing. Payment systems try to combine different dimensions beyond price, sometimes volume, sometimes quality. Basically they want to correct the error of administered prices.
Unfortunately, the book finishes with a worrying  statement:

This is the conundrum of medical pricing; all arrangements that can be implemented have important drawbacks. Although variation in ideology plays a role in the payment methods that different countries use, the wide variation in institutional arrangements around the world as well as the ongoing efforts at attempting to reform and improve those arrangements in almost every country are consistent with that conundrum.

My impression differs a little bit, it is not and ideological issue. Payment methods differ because risk transfer may be possible or not. In a public system, finally the State assumes all the risk. In a private system, providers  market power may reduce the opportunities to transfer such risk.  Professionals in a public and private system don't assume financial risk, they decide but it is finally transferred to insurers and providers. Nowdays, the issue is still open for debate.

Improving physician compensation

A Guide to Physician-Focused Alternative Payment Models

A fixed flat monthly payment to  physicians is a vulgar method to compensate a professional effort. At some initial stages of the career, it may work. As far as experience and knowledge improves results, than some adjustments are needed. In general the publicly funded health system is not able to change the initial stage and remains with more or less the same approach of low-powered incentives. This may work for some individuals, but not for all of them.
Paying on a fee-for service it creates strong incentives to boost volume, and paves the way to overdiagnosis and overtreatment. Privately funded health care is still using mostly this high-powered approach and it is also not able to reform.
Alternative methods of compensating physicians have been described recently in an interesting report. Forget for a while that it is based on the US health system. These are the seven options:

APM #1: Payment for a High-Value Service 
APM #2: Condition-Based Payment for a Physician’s Services

APM #3: Multi-Physician Bundled Payment

APM #4: Physician-Facility Procedure Bundle

APM #5: Warrantied Payment for Physician Services

APM #6: Episode Payment for a Procedure

APM #7: Condition-Based Payment

Food for thought. Something should done to go beyond fee-for service. And do not forget it, changing incentives without any organizational alignment or reform may drive to surprises and poor performance.

PS. Just the opposite to us, NHS expands private care . A controversial trend.

Payment systems vs. prices in health care

Payment Methods: How They Work

The problem in health care is not that prices play a role—that is unavoidable. The problem is that prices are distorted in ways that result in inefficient allocation of health care resources. Patients and physicians use too much of health care services that are of low value and not enough of services that are of high value.

This statement refers to US private health care. It may refer to any private health system. The JAMA article reflects an interesting and forgotten issue: The Importance of Relative Prices in Health Care Spending. Data is usually unavailable, and few studies are able to show the implications of relative prices on outcomes.
My impression is that we should review the role of prices in health care and understand better that we do need payment systems, that beyond the standard Hayek signal for producers and consumers, there is a signal of appropriate acces that sends the regulator. This is what some health systems try to apply in public settings, and what we did in Catalonia long ago.
Therefore, the key issue is not to define the method as this report does, though it is necessary. The most important focus should be devoted to the environment and the process that finally will guarantee access and quality of outcomes.

PS. By the way, does anybody know where current payment system in Catalonia stands? Glups!

Dynamic risk adjustment in provider's payment

Prevention and Dynamic Risk Adjustment

Adjusting Medicaid Managed Care Payments for Changes in Health Status

"Risk-adjustment methods have an inherent structural flaw that rewards preventable deterioration in enrollee health status and improved coding of disease burden", this is the key statement in Fuller et al. article. The answer they provide is the introduction of an additional payment adjustment according to changes in health status for similar mix of enrollees. The payment adjustment being proposed is based on changes in aggregate relative payment weights for all enrollees avoiding any individual adjustment.
This is a concrete application of the initial dynamic risk adjustment proposal that Eggleston et al. made in 2007. They suggested a two step payment system: a conventional risk adjustment (for variations in population health outside the provider’s control) and an additional one related to prevention efforts.
There is still a lot to learn about it. Let's keep an eye on this crucial topic.

PS. Have a look at Commonwealth Fund anouncement: "Our initiative recognizes that a wide range of factors influence providers’ choices, beyond financial rewards or penalties, including intrinsic motivation and medical professionalism, organizational influences, and policy" (see Box)

Why are we waiting?

Waiting Time Policies in the Health Sector What Works?

One could say quickly, waiting lists exist in NHS because prices are mostly absent and insurance plays a role. In consumer markets, waiting lists appear when there are creators of scarcity as Brandenburger-Nalebuff explained in his book as a specific strategy, or when there is a temporary mismatch between supply and demand. Since the solution in health care is not to introduce prices and forget insurance, we have to ask about the best practices on tackling such issue. The report by OECD says:

Supply-side waiting time policies, by themselves, are usually not successful. In the earlier OECD study on waiting time policies, the most common policy was to provide increased funding to health providers to decrease waiting times, and this type of policy continues to be a common approach. It has almost invariably been unsuccessful in bringing down waiting times over the long term. Generally, there is a short-term burst of funding that initially reduces waiting times, but then waiting times increase, and occasionally return to even higher levels when the temporary funding runs out. The other main supply-side policy is increasing hospital productivity, by introducing new payment methods such as activitybased financing (ABF) using diagnosis-related groups. This increases hospital productivity, but does not necessarily decrease waiting times.

The most promising tool is prioritisation within a waiting list. The cases of Norway and Australia are interesting examples to check. Nearer here we started with research, and finally a decree was prepared to be released. Unfortunately last April we received a phone call saying it was not possible to rule on waiting lists, that somebody would do it for us. At that moment I said that the intervention of health policy started. The answer today to the initial question - why are we waiting- is at least this one: we have made unnecessary political concessions and we should apply our legislation, we don't need the intervention from outside. That's it.

PS. Data on waiting lists at December 2012.

The right rate

International Variations in a Selected Number of Surgical Procedures

If you want to be astonished by the huge variation on the rate of surgical procedures in OECD countries, have a look at this report. It is difficult to find arguments for such a huge differences in health care. The key statement:

The data presented here provide contemporary assessments of the size of the clinical margins of uncertainty for the procedures studied. These may also in part be a consequence of varying legal constraints, methods of payment, availability of cover and patient preferences. They therefore provide basic evidence for research priorities in an increasingly evidence-based medicine paradigm. The only way to make proper judgements on the optimal level for a particular procedure is to have national longitudinal data linking individuals’ treatment (and deliberate withholding of treatment) to outcomes. Such data do not exist in most countries. This is a critical deficiency in health service delivery, which means current policy on which procedures to fund, for whom, is formulated in circumstances based more upon local custom and scientific tradition than empirical effectiveness data.

Meanwhile you can add this report to the folders with the Atlas VPM that you may already know.