Cost-Containing Episode-Based Approach to Healthcare: Is It Worth a Look?
Using episodic payment terms could help both businesses and their employees reduce healthcare costs, according to a new analysis by Manatt Health. However, the white paper presents a system with more than a little complexity, even though it holds the promise of lower costs.
The use of episode-based payments is an approach that has been tried by a variety of stakeholders, including the federal government. Under the model, providers are paid a lump sum for a defined episode of care, rather than the traditional fee-for-service approach, which may prioritize quantity of care over quality of care.
Related: Episodes of Value-Based Care
The report promotes this approach, saying employers can create episode-based benefit plans that offer registrants financial incentives to help control health care costs. “Research and field implementations show that episode-based payment arrangements offer an opportunity to stem these rising costs, while increasing coordination of care in the fragmented US healthcare system,” the report says. .
Align goals and incentives
The Episode of Care (EOC) model is sometimes referred to as “bundled care,” since providers and services are “bundled” together for different episodes of care. The model provides incentives to unite stakeholders towards one goal: to provide the best health care to the most efficient providers. Employees receive financial incentives through cost sharing to choose high value providers.
“In the episode-based benefit plan, patients are rewarded with low cost sharing and a predictable price for a full episode of care when they select a high-value EOC contracted provider,” the report says. “Their cost sharing obligations increase as they move to more expensive EOC contracted suppliers. And registrants who refuse to use EOC contracted providers may face even higher cost-sharing obligations for the individual services they use, some of which may not apply to their maximum annual sharing limits. costs. Coupled with strong transparency and patient education tools, this simple cost-sharing framework can motivate patients to make wise healthcare choices that benefit themselves, plans and providers.
And there is evidence that the bundled approach works: Federal programs such as Medicaid and the Affordable Care Act have experimented with the approach and found that it can save money: a 2016 analysis from the Centers for Medicare and Medicaid Service (CMS) found costs in this model setting were 5% lower than baseline costs.
However, getting consumers to accept a new model of care is not easy. The Manatt Health white paper proposes a system of incentives, including the structuring of direct payments (OOP) to encourage registrants to participate in the EOC model. The authors describe a system that reduces OOP payments and improves cost transparency for those participating in pooled care. If employees choose less efficient providers or experience episodes of care that exceed the EOC budget, cost sharing increases.
Navigate complexity with EOC
Although the paper calls for a “simple” framework, the EOC model, like other attempts to streamline care, has a number of complex components. Definitions are very important in determining what an episode of care will cover; employers will have to negotiate terms with supplier systems, possibly multiple systems. The white paper noted that including high-deductible health plans as part of an EOC approach presents unique challenges and suggests that the EOC model should likely replace any HDHP plan.
Regulatory considerations, such as mental health parity laws, should be taken into account in the design of EOC plans. Federal laws requiring coverage of preventive services should also be considered.
A two-part article in Health affairs earlier this year, we noted that value-based payments – another term used with bundled care – have had a mixed impact on payment reform efforts. While such approaches can save money and improve flexibility, the article notes that the complexity of these reforms makes it likely that larger-scale efforts will be more successful. These efforts take time and resources to be implemented successfully, according to the article.
The health affairs article noted that mandatory approaches in this model work better than voluntary approaches, and that large, multi-payer models have the scale to deliver better results. However, the article also notes that multi-payer models are rare and difficult to implement.
Both documents noted that consumer education and buy-in is an important factor in the success of such payment reforms. The health affairs article highlighted Walmart’s efforts to educate and engage employees as part of its multi-layered benefit plan.
The Manatt Health paper concludes by saying that any EOC plan must be carefully designed, but that a successful plan will result in lower and more predictable costs for employers.
“Employers should design and implement their program with care, paying particular attention to training of registrants, transparency of information and regulatory compliance,” the report said. “And those who do may find this framework can motivate registrants to select the providers and services that benefit them the most, while also helping their provider improve their care and lower their plan costs.”