Reimbursement and incentive contracts in health care

1. Reimbursement and incentive contracts in health care By Alan Maynard

2. Outline • Background • Incentivising hospitals • Incentivising doctors • What next?

3. Background • 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)

4. Hospital payment systems • 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

5. Payment options • 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)

6. Global budgets I • 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?

7. Global budgets II • A global budget can give expenditure control • But offers no micro regulation regulation of: • price • quantity (volume) • quality • What measure of volume? • What of quality? ‘The operation was a success but the patient died ……’ !

8. Global budgets III • Contracts: who bears the risk? Purchaser or provider? • Block contract: fixed allocation to cover all care delivered in the year • risk with provider • need for activity ceilings and floors • cost per case contract • risk for purchaser without a volume.activity cap?

9. Global budgets V: summary • Macroeconomic cost containment can be achieved • Microeconomic problems continue: • 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?

10. Retrospective budgets I • 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

11. Cross subsidisation in UCR system Cost Type of funder Private insurer Blue cross/blue shield Medicare/Medicaid Poor

12. Retrospective budgets II • Perverse incentives • maximise activity regardless of appropriateness and efficiency? • No systematic management of quality • activity mix depends on relative prices • lack of cost control

13. Retrospective budgets III: the German case • 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

14. Prospective payment by case I • 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

15. Prospective payment by case II • Exclusions in the US system: • physicians pay • outpatients • mental illness

16. Prospective payment by case III • 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

17. Prospective payment by case IV • Effects: • 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)

18. Purchasing hospital care 1 • 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?

19. Purchasing hospital care 2 • 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

20. Purchasing hospital care 3 • 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?

21. English national tariffs=DRGs • 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

22. Paying doctors • 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

23. Type of pay Incentive effects increase activity decrease activity shift costs target the poor control cost fee-for-service yes no no maybe no salary no yes yes no yes capit-ation no yes yes no yes Doctor payment systems

24. Paying GPs: the old system • 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

25. The 2004 contract • 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”

26. GP Contract quality framework A: Clinical indicators • CHD: 121 • Stroke: 31 • Cancer: 12 • Hypothyroidism: 8 • Diabetes: 99 • Hypertension: 105 • Mental health: 41 • COPD: 45 • Epilepsy: 16 • Total: 550

27. Overview of new contract • 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)

28. Annual differences between fundholder and non-fundholder admission rates

29. Boomerang health policy • 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?

30. Paying hospital consultants • 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….

31. Variation in activity in general surgery: FCEs

32. Variation in activity in general surgery: HRG/cost adjusted

33. Conclusion • “ 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

34. Overview • 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!