Episodes of Care Increasingly Used in Healthcare Payments

graphic-chart-people.jpgBy: Karina Gonzalez

Presently, payment for healthcare services is governed by the use of thousands of codes which describe a specific medical activity.  Payment is made on a fee for service basis based on the medical activity or service rendered. Capitation payments are also used in managed care in which providers are paid a lump sum per patient regardless of how many services the patient received.  Increasingly, payment is being shifted to an episode of care concept and used interchangeably with bundled payments or case rate payments.  These are generally defined on the basis of expected costs for clinically defined episodes of care.   An episode of care can range from a few days to a year and the patient will receive care from multiple providers who treat a particular condition over the length of time it takes to address the specific ailment. An episode of care payment is a single price paid for all the services needed by a patient. 

Many providers and services are already increasingly being paid bundled payments or case rate payments.  For example, Medicare pays hospitals a single amount for non-physician services provided during a hospital stay.  Commercial payors also increasingly use case rate and bundled payments for some specific illnesses for example a knee replacement which has a defined course of treatment.

Some illnesses do not fall neatly into episodes, so what happens when a particular patient has multiple episodes that overlap into each other?  For example, when a patient seeks help with a drug addiction, drug testing is usually required throughout the course of treatment.  Physicians should have the ability to order medically necessary tests to address the patient’s addiction at the various levels of care associated with an episode of care for the addiction.  Clinical drug testing is part of the patient examination performed by a clinician with whom the patient is in a therapeutic relationship.  The testing is used for the purposes of diagnosis, treatment and the promotion of long-term recovery. “Drug Testing: A White Paper of the American Society of Addiction Medicine (ASAM)” October 26, 2013.  There is a tension between the practice of routinely ordering large, arbitrary drug testing panels with confirmations and quantification of all presumptive positive and negative results and the patient’s  illness based on specific medical necessity criteria as determined by the treating physician.  “Arbitrary limits on reimbursement and restrictions on drug testing can interfere with a physician’s judgment and instill discriminatory limits on addictions care”.  ASAM, October 26, 2013. This may lead to inappropriate care if there is not enough evidence based criteria to cover the treatment necessary to address the illness.

There are also drawbacks when the scientific evidence is not settled or when the effects on health outcomes are uncertain. While there is a substantial amount of information on what care and services are necessary within an episode of care for specific illnesses it just many not translate well for others illnesses.

Medicare is already involved with the Bundled Payments for Care Improvement initiative. Under the initiative, providers will enter into payment arrangements that include financial and performance accountability of episodes of care. Medicare is working with 4 models (1) a lump sum payment made to a provider for the entire episode of care; (2) an episode of care for inpatient stay in an acute care hospital and all related services during the episode   (3) an episode of care triggered by the start of post-acute care services with participating skilled nursing facility; and (4) a bundled payment to the hospital for all services furnished during a inpatient stay.  The physicians and other practitioners are paid by the hospital although they submit “no pay” claims to Medicare.

There are many initiatives, including episode of care payments, currently being considered and implemented in healthcare.  The focus should remain on a more patient-based model where arbitrary limits are not imposed on necessary care and services.


6 thoughts on “Episodes of Care Increasingly Used in Healthcare Payments

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