Catalyst for Payment Reform

What Happens When Payment & Benefit Design Clash?

What Happens When Payment & Benefit Design Clash?

Providers, health plans, purchasers, and consumers alike may be doing their part to push the health care system to deliver better quality at a lower cost, including trying new benefit designs or provider payment methods.  However, as long as each stakeholder operates in a vacuum, the success of these initiatives is at stake!

Consider this example. A growing number of providers are taking on financial risk for coordinating their patients’ care.  This may prompt them to increase the number of primary care visits they have with their patients, which is exactly the intended behavior.  However, if one of their patients has recently adopted a high-deductible health plan, forcing them to incur the upfront cost of their health care, this effort may fall on deaf ears.  Many of these consumers are less likely to seek care.  It’s easy to see how these strategies clash!

Let’s take a closer look:  A primary care physician tells her patient with diabetes to get an eye exam. The patient chooses not to get the exam because his high-deductible health plan requires him to pay the full cost out-of-pocket. Later on, the patient experiences blurriness and dark areas of vision.  He has diabetic retinopathy, which could have been prevented through careful diabetes management, but has become so advanced that he needs surgery.  Now the primary care physician gets “dinged” because the costs associated with this patient and others were above the target budget, even though she advises her diabetic patients to get their eyes checked.

Careful consideration of the incentives that providers and consumers face is critical to a successful health care strategy. Here are a couple of examples of how incentives could be aligned.

  • Bundled payment & centers of excellence. Care offered at a center of excellence (COE) often involves a main procedure supported by a suite of related services—tests, scans, labs, consultations, and sometimes physical therapy. Therefore, a package price (otherwise known as a bundled payment) might make sense.  Benefit designs that support COEs usually mean little to no out-of-pocket costs, so COEs are an enticing choice for the consumer. The COE, then, may be more willing to accept a bundled payment arrangement because patients are encouraged to seek care from them.  The bundled payment also encourages participating providers to coordinate patient care.
  • Shared risk & narrow networks. When providers are at financial risk for their patients’ total health care costs, they have an interest in which specialists and other providers they refer their patients to.  At-risk providers prefer that their patients seek less expensive care, stay healthy and out of the hospital. If the network is built around a group of high-performing, lower cost providers, the at-risk physicians are more likely to meet their target budget.  The benefit designs supporting narrow networks usually make it prohibitively expensive for patients to seek care out-of-network, encouraging them to seek care from the high-performing providers.

For a better functioning health care system, we need go beyond just thinking about how to line up providers’ and consumers’ incentives. Start implementing programs with aligned incentives! If you want to learn more, be sure to check out joint papers by CPR and the Urban Institute: Payment Methods and Benefit Designs: How They Work and How They Work Together to Improve Health Care.

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