Reimbursement and incentive
contracts in health care
By
Alan Maynard
Outline
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Background
Incentivising hospitals
Incentivising doctors
What next?
Background
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1.
2.
3.
4.
What’s wrong with the health care market?
Variations in clinical practice : the
Dartmouth Medical School (Wennberg and
Fisher e.g NEJM October 2003), Yates and
Bloor-Maynard(HSJ 12/2002)
Inappropriate care (Bernstein et al IJHTA
1993)
Medical error (Too Err is Human IOM 1999)
Failure to measure outcomes (Nightingale:
dead , relieved and unrelieved)
Hospital payment systems
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1.
2.
3.
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What are you try to achieve?
Expenditure control, or cost
containment
Efficiency
Equity, in health care funding? access?
Utilisation? or health status?
The policy issue of ranking policy
goals and making trade offs
Payment options
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Global budgets
Retrospective budgets
Prospective payment per case
Non financial incentives related to
activity, patient access and patient
outcomes (levels of patient outcome
and distribution between social classes)
Global budgets I
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Fixed financial allocation to the hospital
How is it fixed?
 last year plus x+y+z (where x=inflation,
y=scandals in the press and z=influence of
local politicians!
 Or allocation by formula according to
capitation weighted by need
 how do you identify and manage prices,
quantity and quality?
Global budgets II
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A global budget can give expenditure control
But offers no micro regulation regulation of:
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price
quantity (volume)
quality
What measure of volume?
What of quality?
‘The operation was a success but the
patient died ……’ !
Global budgets III
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Contracts: who bears the risk? Purchaser or
provider?
 Block contract: fixed allocation to cover all
care delivered in the year
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risk with provider
need for activity ceilings and floors
cost per case contract
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risk for purchaser without a volume.activity
cap?
Global budgets V: summary
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Macroeconomic cost containment can
be achieved
Microeconomic problems continue:
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prices: is provision at least cost?
quantity: is volume appropriate?
quality: is treatment provided efficiently(i.e
low cost and good outcomes) with medical
errors controlled at least cost?
Retrospective budgets I
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Fee per item of service
U.C.R. system in the USA pre-1980s
UCR= “usual, customary and
reasonable”)
Cross subsidisation
Still exists in the US system today:
hospitals typically have dozens of
different payers
Cross subsidisation in UCR
system
Cost
Type
of
funder
Private insurer
Blue cross/blue shield
Medicare/Medicaid
Poor
Retrospective budgets II
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Perverse incentives
 maximise activity regardless of
appropriateness and efficiency?
 No systematic management of quality
 activity mix depends on relative
prices
 lack of cost control
Retrospective budgets III: the
German case
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Majority (80%) paid on per diem basis
Longer lengths of stay: inefficient and
costly
Too many beds and hospitals
Move towards DRGs
Retrospective budgeting is seen as
inflationary and inefficient, but it does
incentivise activity
Prospective payment by case I
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Diagnostic related groups
 470 groups
Hospital revenue/income is determined
by DRG price x volume of activity
DRG systems require hospitals to
manage with good information systems
but these systems focus on price and
volume
Prospective payment by case
II
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Exclusions in the US system:
 physicians pay
 outpatients
 mental illness
Prospective payment by case
III
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Further problems:
 sticky prices: how are DRGs adjusted over time as
technology and relative prices alter?
 DRG “creep”: specialist software to maximise
income/revenue
 funding medical schools, usually separate
 information needs (high transactions costs)
 no control of volume or quality, and hence
expenditure.Did not control inflation
Prospective payment by case
IV
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Effects:
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Short term reduction in length of stay
‘quicker-sicker’ (Rand studies in the 1980s)
cream skimming
removal of cross-subsidisation
hospital closures
access for poor (uncompensated care)
supply side moral hazard (reduce service
content)
Purchasing hospital care 1
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What do you want to purchase?
Global budgets give to expenditure control if
the budgets are “hard”
Global budgets do not give you control over
volume/access which is important to patients
and to Governments concerned about waiting
times
Do global budgets and DRGs enable you to
achieve expenditure control and explicitness
about volume?
Purchasing hospital care 2
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Global budgets and DRGs do not resolve the
problems of variations in medical practice
activity, appropriateness and quality/outcome
measurement
Policies to deal with activity variation and
outcome measurement :job plans for
clinicians, publishing mortality data and
measuring HRQOL
Purchasing hospital care 3
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1.
2.
3.
4.
Job plans :measure, manage and police
practitioner activity data about 4 aspects of
their work
What do they produce by case mix and
outcome
How much do the produce relative to their
peers?
What principles determine their adoption of
new and abandonment of old technologies
Who gets what care by social class?
English national tariffs=DRGs
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1.
2.
3.
Why bother with national tariffs when they
will have the same effects as DRGs?
Sort out accounting and clinical practice
variations?
To increase activity?
No efficiency and equity effects? No
outcome measures and “RAWP” trade off?
Being used for all elective activity from
1/4/2005 and more extensively in
Foundation Trusts
Paying doctors
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1.
2.
3.
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Doctors can be paid on the basis of
Fee for service
Capitation
Salary
“There are many mechanisms for paying
physicians, some are good and some are
bad. The three worst are fee for service,
capitation and salary” Jamie Robinson,
Milbank Quarterly 2001
Doctor payment systems
Incentive effects
Type of
pay
increase
activity
decrease
activity
shift
costs
target the
poor
control
cost
fee-forservice
yes
no
no
maybe
no
salary
no
yes
yes
no
yes
capitation
no
yes
yes
no
yes
Paying GPs: the old system
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The role of the GP :the John Wayne
contract!
General practice is a data free activity!
Nearly 40% of GPs are now on salaried
and the rest are self employed and paid
by a mix of capitation, ffs and salary
elements. Contracts were for 24/7/365
cover for patients
The 2004 contract
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Contract is with the practice. GPs can
remain salaried or on the old capitated
contract
“Out of hours” opt out
Ten item “quality contract”:what is the
opportunity cost
What will be excluded? “What is not
incentivised is marginalised”
GP Contract quality framework
A: Clinical indicators
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CHD:
Stroke:
Cancer:
Hypothyroidism:
Diabetes:
Hypertension:
Mental health:
COPD:
Epilepsy:
Total:
121
31
12
8
99
105
41
45
16
550
Overview of new contract
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Uncosted e.g pharmaceutical costs
Knock on effects for secondary care: e.g
referrals for diagnostics and I/P care
Administrative costs of data systems ,
collection and policing: the likelihood of
gaming
The problem of incentivising GP practices e.g.
GP fund holding (see Dusheiko,Gravelle,
Jacobs and Smith, CHE technical paper 26)
Annual differences between fundholder and nonfundholder admission rates
Boomerang health policy
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Having abandoned GP fund holding in
1999, it is to be reintroduced in 2005 as
“practice based fund holding”
Will this “rebranded “ system work
efficiently and equitably?
Paying hospital consultants
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Salary plus excellence awards
New contract 2004 with basic 10x4 hour
programmed activities, of which 7.5 are
“clinical” and 2.5 are “non clinical
Job plans for 41 week year (rest is vacation
and education)
Need to use data to manage their work:
emergence of fee for service experiments to
alter activity distributions….
Variation in activity in general
surgery: FCEs
Finished Consultant Episodes (FCEs)
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
100
90
80
70
60
50
40
30
20
Ranking of consultants
(by percentile, most active at 100, least active at 0)
All Trusts
Anonymous Hospital NHS Trust
10
0
Casemix-adjusted relative cost (£)*
Variation in activity in general
surgery: HRG/cost adjusted
100
90
*FCEs x national average
reference cost based on HRGs
(see guidance notes)
80
70
60
50
40
30
Ranking of consultants
(by percentile, most active at 100, least active at 0)
All Trusts
Anonymous Hospital NHS Trust
20
10
0
Conclusion
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“ The only way to pay doctors is to
change the system every three years as
by then they have learnt to game it!”
Bob Evans
Overview
1.
2.
3.
Be clear about the system goals, their
ranking and trade offs before you
proceed
Mixed systems unavoidable: mix of
both financial and non financial
incentives
Gaming is inevitable and there are no
quick fixes!