Episode-of-care approach to health care containing costs: Worth a look?
Using episode-based payments is an approach that has been tried by a variety of stakeholders. Should more employers be getting on board?
Using episode-based payment arrangements could help both businesses and their employees hold down health care costs, according to a new analysis from Manatt Health. However, the white paper presents a system with more than a little complexity, even if it holds the promise of lower costs.
Using 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 flat fee for a defined episode of care, rather than the traditional fee-for-service approach, which can emphasize quantity of care over quality of care.
Related: Value-based episodes of care
The report promotes this approach, saying that employers can create episode-based benefit plans that give enrollees financial incentives to help keep health care costs in check. “Research and field implementations show that episode-based payment arrangements present an opportunity to stem these rising costs, while increasing the coordination of care in the fragmented US health care system,” the report said.
Aligning goals and incentives
The episode of care (EOC) model is sometimes called “bundled care,” since providers and services are “bundled” together for different episodes of care. The model provides incentives to unify the stakeholders toward one goal: providing the best health care from the most efficient providers. Employees are given 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 an entire episode of care when they select a high-value EOC contracted provider,” the report said. “Their cost-sharing obligations increase as they move to more expensive EOC contracted providers. And enrollees who decline to use EOC contracted providers may face even higher cost-sharing obligations for the individual services they utilize, some of which might not accrue toward their annual maximum out-of-pocket cost-sharing limits. Coupled with strong transparency and patient education tools, this simple framework of cost-sharing can motivate patients to make wise health care choices that benefit themselves, plans and providers alike.”
And there is evidence 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 under this model 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 structuring out-of-pocket (OOP) payments to encourage enrollees to participate in the EOC model. The authors outline a system that lowers OOP payments and improves cost transparency for those participating in bundled care. If employees choose less-efficient providers or experience care episodes that go over the EOC budget, cost-sharing goes up.
Navigating complexity with EOC
Though the paper calls for a “simple” framework, the EOC model, like other attempts to streamline care, has a number of complex components. Definitions matter a great deal in determining what an episode of care will cover; employers will have to negotiate terms with provider systems—possibly several systems. The white paper noted that including high-deductible health plans as part of an EOC approach present unique challenges—and suggests that the EOC model should probably replace any HDHP plan altogether.
Regulatory considerations, such as mental-health parity laws, must be taken into account in designing EOC plans. Federal laws requiring coverage of preventive services also should be factored in.
A two-part article in Health Affairs earlier this year noted that value-based payments—another term used with bundled care—have had a mixed impact on payment reform efforts. Although such approaches can save money and improve flexibility, the article noted that the complexity of these reforms make it likely that larger-scale efforts will be more successful. These efforts require time and resources to implement successfully, the article said.
The Health Affairs article noted that mandatory approaches to this model work better than voluntary ones, and that large, multi-payer models have the scale to provide better results. However, the article also noted that multi-payer models are rare and difficult to implement.
Both papers noted that education and consumer buy-in is an important factor in the success of such payment reforms. The Health Affairs article pointed to Walmart’s effort to educate and engage employees as part of its tiered benefits plan.
The Manatt Health paper concludes by saying any EOC plan should be carefully designed, but that a successful plan will result in lower, more predictable costs for employers.
“Employers must design and implement their program carefully, with attention paid to enrollee education, transparency of information, and regulatory compliance,” the report said. “And those who do may find this framework can motivate enrollees to select the providers and services that most benefit themselves, while helping their provider improve their care, and their plan lower costs.”
Read more: