Posted by David Hyman:
Paying Health Care Providers: How to Make Agency Problems Worse:
http://volokh.com/archives/archive_2009_05_10-2009_05_16.shtml#1242100509
Over the weekend, the New York Times [1]had a nice short piece about
how the way we compensate health care providers can create problematic
incentives. By and large, Medicare pays providers on a fee-for-service
basis � tied to patient encounters and services provided, rather than
the results of those interactions. For hospitals, this takes the form
of a flat payment for each hospitalization, with the specific amount
determined by the discharge diagnosis. (Physicians are paid through a
separate system, which creates its own difficulties).
This payment structure for hospitals has advantages compared to the
cost-based reimbursement system it replaced, but it is far from
perfect. The article focuses on one specific manifestation of the
problem � hospital readmissions within a short time (<30 days) of
discharge. Unless the readmission is within a very short time frame,
or otherwise indicates "gaming" of the reimbursement system, the
hospital will be paid for both admissions.
Readmissions may reflect poor quality care, but they need not.
However, eliminating readmissions that result from poor quality care
results in a better outcome for the patient, lower spending on health
care for the payor, and a reduction in income for the provider:
Millions of patients each year leave the hospital only to return
within weeks or months for lack of proper follow-up care. One in
five Medicare patients, for example, returns to the hospital within
30 days. Over all, readmissions cost the federal government an
estimated $17 billion a year.
But even when hospitals find ways to greatly reduce the return
trips, saving money for Medicare and other insurers, their efforts
go unrewarded. In fact, because insurers typically pay hospitals to
treat patients � not to keep them away by keeping them healthy �
hospitals can actually lose money by providing better care. Empty
beds mean lost revenue.
The article gives two concrete examples of institutions that lowered
their readmission rate, but suffered substantial reductions in income
as a result. One has discontinued the program, and another is only
continuing the program out of a sense of �moral obligation� but notes
that it is �getting killed� by it.
The problem is not unique to this setting; as [2]I observe in a
forthcoming piece, our fragmented health care looks the way that it
does because our �encounter-based, primarily fee-for-service payment
system has a distinct tendency to reward unbundling and inefficiency.
Even under the best of circumstances, the current payment system does
not create systematic incentives to deliver efficient high quality
care.�
The root cause of this failure is simple; as former Assistant
Secretary of Health and Human Services Dr. Philip Lee once noted,
providers �get paid for what we do, not what we accomplish.� The
failure to tie compensation to variables that correlate closely with
patients� needs and desires means that providers rarely have an
economic incentive to invest in quality or prevent error. (Of course,
they have other incentives to address these issues; as I like to
remind my law students when we cover medical malpractice, "no one gets
through medical school with the goal of being below-average or
providing low-quality care.") But, the underlying problem remains --
and at an institutional level, it is hard to create a "business case
for quality" or a sense of urgency in addressing such problems when
improving quality makes the provider financially worse off.
Regardless of one�s views on how the American health care financing
and delivery systems should be structured, it is hard to justify
punishing providers financially for doing a better job for their
patients. As I [3]noted in a long-ago article with Charlie Silver on
using compensation to align the incentives of providers and patients,
�No rational system of payment rewards an agent for a behavior that
makes a principal worse off.�
Finally, the specific problem noted in the New York Times article is
not new; [4]a 1984 article in the New England Journal of Medicine
notes that the readmission rate during 1974-1977 was 22% -- roughly
the same as it was in 2004.
Going forward, we should do more to use payment incentives, as well as
other strategies, to align the interests of providers and patients --
a goal that is easier stated than accomplished. This [5]article gives
some sense of the complexities, even for a problem as long-standing
and seemingly straightforward as readmissions.
As the [6]conclusion to my forthcoming article notes,
In health care, we get what we pay for � and what we pay for is the
provision of specific services �virtually irrespective of whether
they are provided efficiently, or even needed. Because payment is
conditioned on the laying of hands (or eyes) upon a patient, time
spent coordinating care doesn�t create a billing opportunity. When
we don�t pay for something, it generally doesn�t get done.
Similarly, providing integrated care doesn�t pay better than
fragmented care � and in some instances, it pays worse. The results
are entirely predictable � and until the incentives created by the
payment system are modified, we will continue to get what we�ve
already got: a fragmented non-system for delivering care of highly
variable quality at high cost. In our health care delivery
non-system, coordination/integration is the dog that doesn�t bark �
because under our current payment system, no one has any interest
in actually buying the dog.
References
1. http://www.nytimes.com/2009/05/09/business/09relapse.html
2. http://ssrn.com/abstract=1377051
3. http://home.law.uiuc.edu/~dhyman/pdfs/adjustedhymansilver.pdf
4. http://content.nejm.org/cgi/content/abstract/311/21/1349
5.
http://content.nejm.org.proxy2.library.uiuc.edu/cgi/content/short/360/14/1457
6. http://ssrn.com/abstract=1377051
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