Reimbursement and incentives

Question 1

Difference in contracted and integrated providers

Answer 1

Contracted providers typical in social insurance systems, where the payer and the hc provider are separate entities

Integrated providers are typical in tax-based system, where e.g. the central government is often responsible of both hc financing and provision

Question 2

What might the chosen reimbursement strategy depend on?

Answer 2

• type of provider (e.g. hospital, primary care, long-term care etc)
• ownership (private vs public)
• whether there’s a contracted or integrated provider

Question 3

Examples of production functions that reimbursement could be based on

Answer 3

Inputs: Reimbursement for resources needed, e.g. the number of people employed in a facility, wages/salaries that need to be paid, capital

Process/Activities: Reimbursement of different types of services, e.g. X rays, lab tests…

Output: Reimbursement of number of patients treated, e.g. reimbursement for each patient with a particular condition, DRGs

Outcome: Reimbursement of health improvements achieved, change in health state, e.g. survival, QoL

Question 4

Traditional payment mechanisms vs new type of mechanisms, examples

Answer 4

Traditional: budget, salaries, bed-days, FFS
New: per case/episode - disease-related groups, capitation, P4P, mixed payments

Question 5

In which setting is capitation primarily used?

Answer 5

Primary care

Question 6

What does bed-days payment mechanism incentive?

Answer 6

Longer hospital stay (increased inpatient services)

Question 7

Types of incentives, examples

Answer 7

• Financial
• Professional (promotion, status)
• Peer review/control (sometimes simply making data on performance public incentives a change in behaviour, related to reputation)
• practice culture/ethics (e.g. culture of not treating healthy patients)

(different people have different sensitivity to various incentive types)

Question 8

Antitrust policies?

Answer 8

• mainly affect private providers
• aim to prevent monopoly power/aim to retain competition

Antitrust rules prohibit agreements between market operators that would restrict competition, and the abuse of dominance. Competition encourages companies to offer consumers goods and services at the most favourable terms. It encourages efficiency and innovation and reduces prices.

(e.g. if there are several providers in the area and they are not allowed to merge)

Question 9

New Public Management

Answer 9

introducing market like systems (competition, freedom of choice) into public healthcare –> aim to improve efficiency and quality, but there are concerns about equity

-introduction of neoliberal ideas/systems into healthcare

Question 10

Capital controls

Answer 10

government agencies controlling investments (e.g. controlling how resources are used for expansion; so the government can limit the number of beds a provider is allowed to have based on the estimated need)

• example: certificate of need regulations

Question 11

Explain what is meant by regulatory policy?

Answer 11

Regulation refers to the use of nonmarket means to address:
- Quantity of services
- Price of services
- Quality of services
- Distribution of services (equity in utilization)
- Control of establishment of new services

e.g. the government can prevent establishment of new service providers if it is determined that the supply of a particular service is already sufficient

Question 12

Rate regulation aka

Answer 12

price regulation

Question 13

Which sector has been the main object of rate regulation?

Answer 13

the hospital sector

Question 14

In tax-based systems with public ownership the government can exercise control over costs through:

Answer 14

Investment decisions, i.e. financial resource allocation

Question 15

Describe the shift in rate regulation and reimbursement within the hospital sector which occurred in the 80ies (US)

Answer 15

In the 1960’s and 1970’s payment for services were usually on a
retrospective basis (FFS-principle), for systems with private/social insurance; and
prospective basis (budget), for systems with tax-financing.

Prospective reimbursement, adopted by Medicare in the US (1983), marked an important turning point in regulatory efforts to contain the growth of hospital costs in many countries. (Prospective reimbursement means that the episode payment/price per episode is predetermined, but the payment is then made afterwards, corresponding to the number of episodes that have been dealt with

Question 16

What might be the ‘side effects’ of capital controls such as the certificate of need regulation

Answer 16

The regulation is mostly focused on equippment, not staff. So hospitals which are not allowed to expand (e.g. not allowed to add more beds), might for example hire more nurses per bed, which contributes to a quicker turn around of patients, which means overall they’re able to admit more patients)

• i.e. CON may cause hospital to substitute other inputs for capital (rather than obtaining new capital such as beds and facilities, the hospital might add new services or increase staffing)

Question 17

Two-party health care market model?

Answer 17

Describes the situation in which households and healthcare providers have a direct relationships (OOP payments and treatment provision)

Question 18

Prospective reimbursement means:

Answer 18

prices have been predifned, payment is made based on the number of cases handled at a certain price

Question 19

Examples of third-party payers

Answer 19

• private insurance providers
• gov authorities
• social insurance funds

Question 20

Incentives/consequences of budget or ‘block grants’

Answer 20

effective cost containment, low productivity, and low dynamic efficiency, large scope for internal goals to be achieved (budget maximization), although could include indicative volume

Question 21

How are the sizes of budgets/block grants typically determined?

Answer 21

budget mostly determined on historical costs (e.g. how much were the costs last year + account for inflation) –> but historic costs might not match the current costs well, and they do not account for advancements in technology

Question 22

Incentives/consequences of salaries

Answer 22

effective cost containment, low productivity, and low dynamic efficiency

Question 23

Dynamic efficiency

Answer 23

the concept of dynamic efficiency refers to resource allocation over time to achieve a stage where it is not possible to increase welfare by any reallocation across players in different time periods

Question 24

Incentives/consequences of bed-day payments

Answer 24

lower patient turnover and prolong lengths of stay

Question 25

Incentives/consequences of FFS

Answer 25

incentives to raise quantity, quality, and prices of services provided, problem with cost containment, non-price competition, expensive new medical technologies

(fees are set prospectively, however a provider can claim however many services they deemed appropriate/necessary for a particular patient)

Question 26

Incentives/consequences of payments per case/episode

Answer 26

constraining providers’ incentive to increase service volumes (eg. lab.tests),. Incentives to increase turnover (reduce average length of stay), DRG-creep

• could potentially lead to lower quality services because providers strive for a large turnover - but the ‘outcome-related’ bundles help mitigate that to an extent (Bundled payment: longer episode - outcome related; value-based care)

Question 27

DRG creep

Answer 27

manipulating the system by making diagnoses which are known to have higher price per episode

Question 28

Incentives/consequences of capitation

Answer 28

cost containment, equal allocation of resources, problem with access, “spill-over”-effects (higher referrals to specialist services

• capitation does not give any incentive to actually see the patient

(risk selection if listings not weighted/risk adjusted)

Question 29

Incentives/consequences of pay for performance

Answer 29

the effects varies, important to set the criteria, complex to deploy/standardize

(P4P usually comprises a very small proportion of payment to hospitals, cca 5%)

Question 30

Incentives/consequences of mixed systems

Answer 30

little experience, removes or diminish the strong incentives, counter-balance incentives from different methods

Question 31

How can prospective payments act as a cost containment policy?

Answer 31

Under retrospective payment, a hospital submitted its bill to Medicare (or any third party insurer) after the care had been given and the costs to the hospital were known. Retrospective payment allowed the hospitals to recover their expenses.

Prospective payment system (PPS) sets payment rates prior to the period for which care is given. By setting a fixed reimbursement level per admission, prospective payment provides economic incentives to conserve on the use of input resources (only use the necessary services/services that truly add value)

Question 32

Diagnostic related groups (DRGs)

Answer 32

A classification system of hospital cases into one of originally 467 groups (US)

DRGs are assigned by a “grouper” program based on:
- ICD (International Classification of Diseases) diagnoses
- associated Procedures (mainly surgical) (keep in mind that the prices of procedures are national/varied worldwide, so countries who utilise DRGs tend to develop their own groupations)
- Age/sex
- The presence of complications or comorbidities
- Discharge status

Principle of classification:
Clinical coherent (major diagnostic groups)
Same level of resource use

Question 33

Purpose of DRGs

Answer 33

• Benchmarking of utilization and quality (Benchmarking = comparison against best practice)
• Improve the accuracy of mainly inpatient hospital payments by using hospital costs rather than charges or budgets to set rates and reimburse
• Adjust payment to recognize better the severity of illness and the cost of treating patients by increasing payment for some services and decreasing payment for others

DRGs world-wide diffusion:
- Central tool for prospective reimbursement of acute hospital in many countries
- Used for both reimbursement and analytical tool (bechmarking)

(many countries started with US cost wights when they initially introduced Disease Related Groups, but then with time adapted them based on their national cost data (more accurate))

Question 34

How can hospital revenue in a DRG-based funding system be calculated?

Answer 34

Revenue = Quantity x Price

Quantity - number and type of patients treated (patients described by DRG)
Prices - calculated by comparing DRG costs across hospitals

Question 35

EQ5D dimensions

Answer 35

EQ5D is a standardised measure of health-related QoL, comprises 5 dimensions: mobility, self-care, usual activities, pain/discomfort and anxiety/depression

Question 36

Capitation principles (primary health services)

Answer 36

• Per inhabitant
• Adjusted for age and gender
• Adjusted for socioeconomic and demographic indicators
• Adjusted for clinical conditions

*older age and being female associated with higher health needs
* a listing of a 30 y.o. man and 80 y.o. woman won’t be reimbursed the same

Question 37

Purpose of risk adjustment in capitation

Answer 37

risk adjustment: used for setting capitation rates, insurance premiums and for appropriately distributing health care resources within large health systems.
- prevents selection based on risk
- protects providers with higher numbers of high-risk individuals listed

(Capitation is a fixed amount of money per patient per unit of time paid in advance to the physician for the delivery of health care services.)

Question 38

Risk factors are taken into consideration to come up with a:

Answer 38

Risk score

Question 39

Adjusted clinical groups (ACG)

Answer 39

The ACG system quantifies morbidity by grouping individuals based on their age and gender and all medical diagnoses that have been recorded over a defined period of time, typically one year.
(they are expected to have similar consumption of healthcare resources)

Question 40

Care Need Index (CNI)

Answer 40

CNI is a tool that uses socio-economic conditions to identify the risk of health. Among other things, it can be used by regions as support when calculating healthcare compensation.

Question 41

The socio-economic variables covered by the CNI are: (Care Need Index)

Answer 41

• Age over 65 and living alone
• Born abroad (Eastern Europe, Asia, Africa and South America)
• Unemployed or in labour market support 16-64 years
• Single parent with children 17 years or younger
• Person one year or older who moved into the area
• Low-educated 25-64 years
• Age younger than five years

Question 42

International Classification of Disease

Answer 42

ICD serves a broad range of uses globally and provides critical knowledge on the extent, causes and consequences of human disease and death worldwide via data that is reported and coded with the ICD. Clinical terms coded with ICD are the main basis for health recording and statistics on disease in primary, secondary and tertiary care, as well as on cause of death certificates. These data and statistics support payment systems, service planning, administration of quality and safety, and health services research. Diagnostic guidance linked to categories of ICD also standardizes data collection and enables large scale research.

For more than a century, the International Classification of Diseases (ICD) has been the basis for comparable statistics on causes of mortality and morbidity between places and over time. Originating in the 19th century, the latest version of the ICD, ICD-11, was adopted by the 72nd World Health Assembly in 2019 and came into effect on 1st January 2022.

Question 43

Describe the financial risk of different reimbursement systems to providers and purchases

Answer 43

• the newer reimbursment models are associated with increased transfer of risk to provider

Reimbursement systems ranked from highest to lowest payer risk (opposite is true from the provider perspective): per item, per diem, DRG, episode of care, capitation

Question 44

Cost per DRG-point in a particular country are likely to be:

Answer 44

Varied - costs for the same DRG are usually different in different parts of a country (average calculated?)

Question 45

Funding objectives:

Answer 45

• Control overall expenditure
• Ensure fair reimbursement (equal pay for equal work)
• Incentivise efficiency
• Improve quality

Question 46

Medicare’s prospective payment system (predetermined how much the provider will get for a specific DRG) - effects on hospital legth of stay? And change in ‘complexity’?

Answer 46

continual and long lasting decreases of hospital stay

Another observed change following the onset of Medicare’s PPS has been the increase in common case-mix indexes. A case-mix index is a numerical measure of the assortment of patient cases treated by a given hospital so that a higher index value indicates a greater average degree of complexity of the cases and consequently a greater need for input resources. (coding as more complex diagnoses??)

Question 46

Critical assessment of FFS, capitation and salary reimbursement strategies

Answer 46

”There are many mechanisms for paying physicians; some
are good and same are bad. The three worst are fee-for-
service, capitation and salary. Fee-for-service rewards the
provision of inappropriate services, the fraudulent upcoding
of visits and procedures, and the churning of ”ping-pong”
referrals among specialists. Capitation rewards the denial
of appropriate services, the dumping of the chronically ill
and a narrow scope of practice that refers out every
timeconsuming patient. Salary undermines productivity,
condones on-the-job leisure, and foster a bureaucratic
mentality in which every procedure is someone else’s
problem.”