Episode of Care Payment: A Payment Trend to Watch Out For

The sweeping healthcare reform legislation passed in March 2010 included provisions that will alter the delivery of and payment for healthcare services in the future. A primary need outlined by stakeholders during the reform debate is the increasing need for care coordination among physicians, specialists and hospitals. Within the US currently, there are a handful of successful integrated delivery systems (e.g., Geisinger Health System, Intermountain Healthcare, the Cleveland Clinic) which claim delivery of both high-quality and cost effective treatment. These systems served as a catalyst for increased coordinated care. The natural progression of a shift in delivery systems is a shift in how services are reimbursed. As Congressional folks drafted final legislation, provisions in the Patient Protection and Affordable Care Act (PPACA), lay the foundation for a shift towards coordinated care and move away from traditional fee-for-service (FFS) payment systems into bundled payment by episode(s) of care (EOC).

The most prominent provision of (EOC) payment is the establishment of the Medicare Shared Savings demonstration program for accountable care organizations (ACOs), which will encourage high quality and efficient service delivery. For the purposes of the demonstration program, the Centers for Medicare and Medicaid Services (CMS) defines an ACO as an organization of healthcare providers that agrees to be accountable for the quality, cost and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service and are assigned to the ACO.¹ It is not currently evident how the patients will be selected to be under an ACO. There is discussion among stakeholders that a patient may unknowingly be enrolled in an ACO² and therefore attributed to a virtual organization which lacks similarity to how existing integrated systems function. The Secretary of HHS is likely to release formal guidance in the future around ACOs to ensure it meets the establishment of the Medicare Shared Savings Program by January 1, 2012.

Participating ACOs will report and be assessed on certain quality of care measures including clinical processes and outcomes, patient and caregiver experience and utilization.³ ACOs that meet the quality performance standards and achieve significant savings can receive bonus payments. The quality measures will be established by the Department of Health and Human Services (HHS), but are likely to be centered around chronic conditions. Beyond the establishment of ACOs, another key provision in healthcare reform established the Independent Payment Advisory Board (IPAB). The IPAB will provide Congress proposals to reduce growth in Medicare spending.⁴ The inclusion of the IPAB is significant as it is likely to implement changes to payment systems to improve quality while reducing overall costs. The IPAB authority does not go into effective until January 1, 2014, but unlike other existing advisory bodies (e.g., the Medicare Payment Advisory Commission, MedPAC) IPAB recommendations will go into law unless Congress or the President acts on the provision. Also of note, the PPACA also establishes the Innovation Center within CMS to test and evaluate new payment structures and methodologies to reduce overall expenditures. Moving forward, payment models tested by the Innovation Center may be rolled out to both the Medicare and Medicaid programs.