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Substantial deficits in the quality of health care and persistent and unsustainable growth in health care spending have led to calls for reform of the Medicare system, including such
steps as increasing performance accountability and making changes in payment policies (IOM, 2001; IOM 2006). Existing Medicare fee-for-service (FFS) performance measurement and payment policies focus on individual provider silos (e.g., provider types and settings of care). The separate performance measurement and payment systems for each provider type and setting are not aligned around or reflective of the continuum of care that a beneficiary receives within a given course of treatment or episode of care. Aligning performance measurement and financial incentives for service delivery around a beneficiary’s episode of care is one reform mechanism being considered in an effort to improve care delivery and coordination for the beneficiary and, in turn, to drive improvements in quality and the use of resources.
The Assistant Secretary for Planning and Evaluation (ASPE) contracted with RAND to explore how episodes of care could be defined for a limited set of clinical events/conditions and, based on varying definitions, to consider ways in which the alignment of performance measurement, accountability and incentives to providers could be improved within the current Medicare payment and performance measurement systems in the near term. RAND was also tasked to provide ASPE with options to consider in moving toward broader episode-based performance measurement and payment reforms to encourage high quality, efficient and coordinated care. A core piece of the work involved using two commercially available episode grouping software tools to construct episodes; the constructed episodes were then used to illustrate a variety of issues that would need to be considered in applying episodes as a basis for payment and/or performance measurement.
The project used a “building block” framework to examine the construction and application of episodes of care for similarly situated beneficiaries under Medicare FFS. For the purposes of this project, we define an episode of care as a series of health care services related to the treatment of a specific illness or injury. In the context of a building block approach, an episode of care could be constructed (1) narrowly to reflect the services delivered by one provider in a single setting for a specific illness or injury, (2) more broadly to reflect the services delivered in a single setting by multiple providers, such as the physician and the hospital during an inpatient stay, (3) very broadly to encompass the entire continuum of services received across multiple settings and providers for treatment/management of a specific condition, or (4) other variations along this continuum. The work included a review of the literature, discussions with experts, cataloging existing performance measurement and payment approaches used by Medicare, analyses of episodes constructed for nine clinical conditions for beneficiaries living in three states, a synthesis of findings and recommendations for future work. A panel of technical experts also provided comments on our analyses of episodes, and reviewed and commented on the final project report.
Existing Medicare Provider Payment Approaches
We catalogued the provider payment approaches used by Medicare as of 2008, which revealed two important issues of relevance to this project.
Separate Payment Mechanisms Do not Foster Coordination and Shared Accountabilities
Medicare uses separate payment mechanisms for each of its FFS provider settings and Medicare Advantage plans, and these payments are currently not aligned in ways that foster coordination, shared accountabilities, and delivery of high quality care. For the FFS program, Medicare predominantly uses prospective rate systems to pay providers, through which providers agree to accept as payment in full a predetermined amount for each separate billable Medicare covered product, service, admission or set of services. The amount of the base payment to a provider is based on a unit of service, which varies by type of provider. Typically, base payments are adjusted for patient characteristics, geographic factors, and in the case of physician payments, for practice expenses and professional liability costs. Payment rates for most settings are updated annually to account for changes in market conditions, technology or practice patterns.
Where Differential Payment Policies Exist, the Focus is on Reporting of Performance
Differential payments to providers currently reflect additional payments for reporting rather than actual performance. As of July 2008, Medicare had pay-for-reporting programs in place for the hospital inpatient, hospital outpatient, and home health settings; these programs require providers to voluntarily report on a defined set of performance measures or forego two percentage points of their annual payment update. Additionally, as part of FY 2008 IPPS hospital payment regulations, Medicare embedded quality performance in a limited fashion into its hospital reimbursement policy, by ruling that it would no longer reimburse hospitals for the additional costs associated with certain preventable conditions (CMS, 2007). The Medicare Physician Quality Reporting Initiative (PQRI), initiated under the Tax Relief and Health Care Act of 2006, provides a financial incentive (a bonus) of up to 2.0 percent of total allowed charges for covered Medicare physician fee schedule services to physicians who voluntarily report on a minimum of three clinical quality measures during the reporting period. The PQRI results are not made publicly available at this time, whereas the results of the hospital inpatient and the home health reporting programs are shared with consumers on the Medicare Compare websites. In the future, some or all of these programs may transition from pay-for-reporting to pay-for-performance programs, in which providers would be paid differentially based on actual performance rather than the reporting of measures.
We catalogued performance measures that are being reported to Medicare as of 2008, finding that Medicare is collecting a significant number of performance measures; however these efforts currently are single setting and provider focused and they emphasizes assessment of the provision of discrete services rather than the full spectrum of services within an episode for any given patient
Medicare Collects Quality Performance Data across Many Settings and Conditions
For the FFS program, Medicare currently collects data on quality measures for six different health care settings:
As previously described, four settings have financial incentives associated with the reporting of measures to CMS: (1) hospital inpatient, (2) hospital outpatient, (3) home health agencies, and (4) physicians. Public reporting of performance measures currently occurs for providers in four settings: (1) hospital inpatient, (2) HHAs, (3) SNFs, and (4) dialysis facilities.
There are 249 performance measures submitted to CMS in the six provider settings, and these measures cover 53 different clinical conditions/procedures as well as patient experience in the hospital setting, the presence of health information technology in physician offices, and some patient functional status measures that are not disease/condition specific for skilled nursing facilities and home health.
Medicare Measurement Efforts do not Address the Continuum of Care Delivered across an Entire Episode
Current health care quality measurement efforts focus on assessing care for individual indicators of performance for a patient with a specific clinical condition or set of risk factors at discrete points in time (e.g., percentage of patients with diabetes who received an HbA1c screening test or the percentage of women between the ages of 40-69 who received a mammogram). The measurement typically focuses on the actions of a single type of provider, such as the physician or the hospital, and emphasizes assessment of the provision of discrete services rather than the full spectrum of services within an episode for any given patient.
The existing Medicare performance reporting systems with their discrete service indicator focus, do little to address the continuum of a patient’s care across provider settings or to create reinforcing incentives and joint accountabilities among providers for the care delivered to patients. Only 10 clinical conditions are addressed by reporting programs for more than one setting. Three clinical conditions are included in programs for three settings: (1) acute myocardial infarction, (2) perioperative/surgical care, and (3) urinary incontinence. Seven conditions are included in programs for two settings: (1) back pain, (2) community acquired pneumonia, (3) depression, (4) end stage renal disease, (5) heart failure, (6) pain, and (7) prevention.
For the conditions addressed by more than one Medicare reporting program, the measures used do not fully permit the examination of the quality of care across a patient’s entire episode. There is little overlap in the conditions covered across the reporting programs and there is a lack of coordination of measures across settings when there are measures for the same condition. Across the various conditions, measures may address selected aspects of care in certain settings. Important performance measurement gaps exist when considering measurement using an episode of care framework for assessment. Key among the gaps are measures that directly assess care coordination or transitions of care from one setting to another—actions which are critical given that for most conditions, Medicare beneficiaries are being managed by multiple providers in multiple care settings.
We reviewed the empirical literature and held discussions with a small number of experts to identify what types of episodes of care or other groupings of related services have been used, tested, or proposed as a basis for performance measurement and accountability and/or payment. This review was used to inform our consideration and discussion of issues related to alternative approaches to defining an episode of care.
Our review finds that episodes of care, defined in a variety of ways, have been used or proposed for use as a unit of payment and as a unit of measurement to assess relative resource use and/or quality performance. Generally, the episode of care definitions that have been applied or tested tend to be narrow in scope—such as focusing on a single setting of care as is the case with DRG payments for an inpatient stay. An exception to this is the application of commercial episode grouper software tools that examine resource utilization across multiple settings and providers. The more recent policy literature discusses broader episode of care constructs for use in performance measurement, joint accountabilities, and payment, but there remains little detailed developmental work or actual testing of these broader episode constructions.
There is a lack of empirical work regarding how best to construct an episode for the various applications being considered, and what the potential ramifications are of various episode definitions. While not an exhaustive list, some of the unaddressed questions include: How should an episode of care be defined (how broad vs. how narrow) and would the definition vary depending on the particular application and/or type of condition? Which providers would be held accountable for an episode and how would these accountable groupings of providers be configured in a disconnected FFS environment? What types of case mix issues arise within episode of care applications, and how should differences in case mix be handled? What types of unintended consequences might occur and under which applications—such as skimping on care provided during an episode (which is reminiscent of concerns with capitation payment arrangements), the potential for gaming to maximize reimbursement (e.g. upcoding diagnoses to place patient in an episode with better reimbursement, reminiscent of concerns with certain DRGs or modifying coding or service delivery practices to increase the number of episodes assigned to a patient)—and what types of control mechanisms need to be put in place to minimize the likelihood of unintended consequences occurring? How should financial incentives or bundled payments be allocated among various providers delivering services during an episode?
The Application of Episodes of Care
The use of episodes of care for quality measurement and accountability is mostly non-existent in practice, although it has been proposed and discussed in the literature as a strategy for reforming Medicare. There are a few cases where providers are being held accountable for what percentage of their patients with a particular condition received all recommended services under what is referred to as an “appropriate care” composite measure, such as for patients with diabetes (Health Partners, 2007) or for patients undergoing coronary artery bypass graft (CABG) surgery. However, these “bundled” measurement efforts generally are limited in scope to physicians providing care in a single care setting and do not cut across the trajectory of care to involve multiple care settings.
Aligning or coordinating condition-specific measurement efforts across different provider types and settings as a mechanism to enhance the care delivered during an episode of care has not been addressed in the literature or in practice. Hospitals have recognized, however, the importance of aligning hospital and physician measures to improve care delivered in a narrow inpatient episode (Damberg et al. 2007), which could occur even within the existing silo-based performance measurement framework that Medicare has in place through alignment and coordination of measurement across programmatic efforts.
The IOM has recommended the use of episode-based performance measurement in two recent reports (Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2006; Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2007), suggesting that currently available point-in-time quality measures could be aggregated to the episode level and then applied. The IOM also identified a number of measurement gaps associated with measuring care over the course of an episode, including care coordination and transitions across care settings, patient outcomes over time, and measures of the oversupply of services, and recommended using such measures in the future (Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2006). Research suggests that improvements in care around patients transitioning from the hospital to the community could substantially reduce readmission rates (Coleman et al., 2006; Naylor and McCauley, 1999). Some progress has been made in recent years to develop measures to assess care coordination and transitions in care ( Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2006). For example, as part of the 9th Scope of Work, Quality Improvement Organizations (QIOs) in 14 states will work to improve care coordination and transitions between settings for Medicare beneficiaries.
Some of the experts with whom we held discussions raised concerns about adequacy of currently available quality measures for episode-based approaches. However, others held the view that quality measurement could be improved for use in episode-based approaches, and felt that existing measures were adequate for initial steps towards episode-based approaches, citing the efforts of the NQF and others in developing measures to address current gaps. Experts also described a need for new data collection systems, such as clinical registries and electronic health records that would facilitate broader measurement efforts.
In contrast, measurement of resource utilization has been conducted using episodes of care as the unit of analysis and reporting (McGlynn et al., 2008). The past five years has seen increased use by commercial payers of software tools that measure resource use within an episode of care construct—mostly for profiling, but in some cases for establishing tiered insurance products. Testing work is being done to determine if such measures can be incorporated into pay-for-performance program. In the resource use measurement application, the episode is typically limited to care delivered in ambulatory care and inpatient settings (post-acute care typically is not considered as it is less common in the commercially-insured-aged population). CMS has also begun to explore the potential use of commercial episode grouper tools to profile physician resource use within the Medicare program. CMS has funded an array of projects which have considered or are examining how Medicare data is handled by commercial groupers, the underlying clinical logic of the groupers, and the construction and testing of resource use reports with physicians. The National Quality Forum (NQF) is currently examining the joint measurement of quality and cost using episodes of care as the basis of assessment (National Quality Forum, 2007).
Episodes of care have been used and proposed as a unit of payment for over 25 years; however, such applications have focused on narrow definitions of what constitutes an episode of care and have not considered definitions that more broadly encompass a larger piece of or the entirety of the patient’s care trajectory. Where episode-based payment approaches have been applied, they either have been limited to single settings (e.g., prospective DRG payments for hospital-based services related to an admission) or were tested within a limited scope of care delivery (e.g., Medicare Participating Heart Bypass Center Demonstration).
Key payment-related issues that surface in the conceptual discussions of episode-based payments include how to structure an episode-based payment and how to divide an episode-based payment among multiple providers who might be involved in delivering the care. Within the literature, proposals for structuring payments focus on withholding a portion of payments and adjusting the withheld amount retrospectively based on resource use and quality of care during an episode of care (Davis and Guterman, 2007; Pham and Ginsburg, 2007; Jencks and Dobson, 1985; Welch, 1989; Wennberg et al., 2007) similar to a pay-for-performance (P4P) approach, or alternatively, the payment amount for the episode of care could be set prospectively and adjusted based on the quality of care for the episode. Although withholds have been used to reward quality performance for discrete services and prospective payment has been used within a narrow DRG episode context (though not linked to quality performance), neither approach has been tested using a broad episode of care construct as the basis.
The literature also highlighted the challenge of how to divide a payment for a single episode of care, when multiple providers are involved in the management of the episode. Options discussed in the literature include allowing an entity that has been assigned accountability for the episode to determine their payment arrangements with other participating providers or paying each provider separately by dividing the payment according to a predetermined formula (e.g., based on current Medicare payment rates) (Davis and Guterman, 2007; Network for Regional Healthcare Improvement, 2007) .
Some proposals for episode-based payment reforms in the literature have considered using a “building block” approach. Such an approach might begin with adjustment of FFS payments (e.g., the application of a P4P financial incentive), which would require relatively minor changes to Medicare policy, then potentially move towards a prospective payment approach for episodes that involves larger reforms and modifications to current payment structures (e.g., Wennberg et al., 2007). In our discussions, the experts expressed support for such a “building block” approach; however, many stated that significant financial incentives, such as bundled payment, would ultimately be necessary to achieve significant results, although much more difficult to implement.
Types of Episode of Care Definitions that Have Been Proposed or Are in Use
A broad variety of episode definitions have been used in practice or proposed in the health policy literature. Episodes of care could be constructed in a variety of ways which could encompass different parts of the continuum of care. Conceptually, health care services could be aggregated into episodes along two dimensions:
(1) Services Related to a Major Inpatient Procedure. This type of episode typically bundles together the inpatient and physician services payments related to a major procedure. We found four examples cited in the literature of the use of this type of episode construction for payment and in some cases for quality measurement for coronary artery bypass graft (CABG) surgery.
(2) Services Related to an Outpatient Procedure. In the Cataract Alternative Payment Demonstration, Medicare tested an episode-based payment for outpatient cataract surgery. The episode included physician and facility fees, intraocular lens costs, and selected pre- and postoperative tests. Payment rates were determined by competitive bidding. Participation was very low, and the demonstration produced a low level of savings compared to the Participating Heart Bypass Center Demonstration, with little impact on utilization or patient outcomes (Abt Associates Inc., 1997).
(3) Contact Capitation for Specialists. This episode definition, used for payment, included specialist physician services related to treatment of a particular condition, and in some cases hospital and/or ancillary services (Frank and Roeder, 1999). Under this type of episode, the episode begins with the referral to the specialist and ends after a specified time or clinical endpoint. This payment arrangement was found to be common among large Independent Practice Associations (IPAs) in the late 1990s (Robinson, 1999); however, the system proved to be administratively complex (Frank and Roeder, 1999).
While various types of episode construction have been discussed, relatively few examples exist for how each type has been applied. The findings from the various applications of episodes suggest that the potential for using episodes and achieving the goals of episode-based payment and performance measurement will likely vary depending not only on how the episode is constructed, but also on implementation issues, such as participation rates in efforts making use of episodes.
(1) Services Related to a Hospitalization. Several proposals in the literature have focused on constructing episodes of care related to a hospitalization. In many approaches in the literature, the episode would include related care provided during a post-discharge time period, potentially including post-acute institutional, home health care, and follow-up medical and therapy services. The earlier proposals, starting before the implementation of IPPS, focused on payment only. More recently, the proposals have also included a focus on performance measurement.
(2) Preventive Care or Primary Care Episodes. Several recent articles included proposals to create episodes of care covering preventive care or primary care only, excluding specialty care, hospital care, ancillaries, etc., with the episode capturing up to a year of time (Goroll et al., 2007; Network for Regional Healthcare Improvement, 2007; Pham and Ginsburg, 2007) . To qualify for the payment, providers may be required to demonstrate that they meet criteria for an “advanced medical home.”
(3) Chronic Care Episodes. Several articles proposed bundling together services related to the management of chronic conditions, including services provided by the physician managing the condition and possibly diagnostic tests, with general primary care physician services, specialists, hospital care, long-term care, etc. paid separately (Berenson, 2007; Davis and Guterman, 2007; Network for Regional Healthcare Improvement, 2007) . An existing example is the Medicare payment of physicians for management of end-stage renal disease (ESRD) (Leavitt, 2008).
(4) Broader Definitions of Episodes. Several articles have proposed using broader definitions of episodes of care to bundle together all services related to a particular condition for the purposes of performance measurement and/or payment (U. S. Office of Technology Assessment, 1986; Davis and Guterman, 2007; Pham and Ginsburg, 2007) . Two proprietary episode “grouper” software programs, the Symmetry Episode Treatment Groups (ETGs) and the Thomson-Medstat Medical Episode Groups (MEGs), bundle claims into episodes based on procedure and/or diagnosis codes. However, a recent review found little published literature on the clinical validity of the groupers (McGlynn et al., 2008). CMS has funded a study to study the clinical validity but the study is still ongoing. Current applications using a broader episode definition have focused on profiling physicians on their relative resource use applying the commercially available grouper tools.
(5) Prometheus Payment Model Approach. The Prometheus Payment program, which has been conceptualized but not yet tested, proposes to base payment and performance measurement on episodes defined using diagnoses and clinical practice guidelines for appropriate services. The program proposes to develop an evidence-informed case rate (ECR), which would be a single, risk-adjusted, prospective (or retrospective) payment given to providers across inpatient and outpatient settings to care for a patient diagnosed with a specific condition—in effect the defined “episode” under this model. Payment amounts would be based on the resources required to provide care as recommended in well-accepted clinical guidelines. This model calls for a portion of the payment to be withheld and re-distributed based on provider performance on measures of clinical process, outcomes of care, and patient experience with care received (de Brantes and Camillus, 2007).
We discussed with the experts their views on the pros and cons of different episode definitions. Most experts professed a strong preference for episodes that cut across multiple settings because of the incentives created for care coordination. A particular concern flagged by many experts was how to approach complex patients with multiple chronic conditions, who represent a high proportion of Medicare costs. Many experts doubted whether episodes focusing on each disease separately were appropriate for these patients, who may be better managed using a more holistic approach. Alternative approaches for handling complex patients with multiple conditions included medical homes or other arrangements, in which an organization accepted accountability for performance and a care coordination payment, capitation payment, or other payment for management of multiple conditions.
A critical issue when measuring clinical performance and resource utilization is assigning responsibility (also called “attribution”) for the services or set of services that are or are not provided to a beneficiary. The building block approach, which illustrates that an episode can be constructed and used in various ways, implies different issues related to attribution.
An episode-based approach that cuts across the continuum of care would require that accountability for the episode to be assigned to an entity or group of entities. The accountable entities would then assume responsibility for performance (i.e., quality and/or resource use pertaining to the full set of services provided (or not provided) during the episode). Accountability could be reinforced in a range of ways, including, but not limited to, measurement and providing feedback to providers on performance and resource use for episodes of care, public reporting of performance results within an episode of care construct, financial incentives for performance and/or resource use for episodes of care, or episode-based payment adjusted for performance.
In reviewing the literature, we sought to understand how attribution has been addressed either in practice or in concept within the area of performance measurement. Some of the approaches focused on assigning accountability to a single entity, while other approaches jointly attributed an episode to multiple entities. Depending on how an episode of care is defined, the accountable entities accountability could be individual providers, integrated provider groups such as physician group practices or integrated delivery systems, or “virtual groups” of providers that create a formal relationship for the purposes of episode-based payment and/or performance measurement (Davis and Guterman, 2007). A paper by Fisher et al. (2006) calls for the construction of Accountable Care Organizations (ACOs) by defining virtual groups that comprise physicians and the hospitals where they work or admit their patients; the researchers assert that this approach is feasible because Medicare beneficiaries receive most of their care from relatively coherent local delivery systems. Some of the experts interviewed favored beginning by allowing integrated provider groups to accept accountability for episodes, while others expressed concerns that such an arrangement would reward existing organizational structures; instead allowing attribution to virtual groups would foster more innovation in health care delivery and may move providers towards forming more cohesive group arrangements.
Specific entities that have been used or proposed as the basis of attribution include:
Assignments could be made prospectively or retrospectively under any of these scenarios. Prospective designation allows for some choice by physicians and patients about which providers should be responsible for which patients’ episodes of care (Davis, 2007; Pham, Schrag et al., 2007), but it also creates the possibility of risk selection (i.e., incentivizing providers to assume accountability for healthier, more-profitable patients). Prospective designation is easier in environments, such as managed care plans, where patients are already assigned to primary care physicians (PCPs). In a FFS environment, when patients may use multiple PCPs, the assignment could prove more challenging. Retrospective attribution is methodologically challenging because physicians frequently bill under multiple tax identifiers and these tax identifiers may be at a group level thereby precluding attribution to a specific physician.
Both approaches to attribution raise policy considerations because different assignment methods can lead to substantially different results on various criteria. In a previous study, RAND found significant variation in both the fraction of episodes that could be assigned to a physician and the level of agreement to which a physician was held responsible. RAND researchers (Mehrotra et al., 2007) examined 13 retrospective assignment rules in assigning episodes of resource utilization constructed from Symmetry’s ETG tool. This study applied the assignment rules against an aggregated claims database from four commercial health plans in Massachusetts . The 13 rules differed on characteristics such as the basis of assignment (e.g. costs versus visits) and whether only one or multiple physicians were assigned to an episode. Comparing the results of two different rules found that 50 percent of the episodes were assigned to different physicians, illustrating that different assignment methods using different criteria can lead to substantially different results regarding which provider would be held responsible.
When accountability is assigned to individual physicians, small sample sizes could lead to substantial risk for costs and/or quality outcomes given that the estimates of costs and performance based on a small number of cases will be noisy (i.e., highly variable)—which is one reason thaThe discussions with experts found sharp differences of opinion on the relative merits of these two approaches. Some experts strongly believed that providers would not “buy in” to episode-based approaches unless they had prospectively identified the patients/episodes for which they were accountable. Other experts expressed a concern that very few providers were organized into formally linked groups of providers to be able to accept accountability for episodes, and that strong incentives would be required to drive them to organize themselves to do so. Some experts expressed doubt that many providers would voluntarily accept accountability for episodes.t Fisher et al. (2006) recommended assigning accountability to larger units. However, the risk would also depend on the variability of the outcome in question and potential safeguards against risk that could be used. Given the degree of dispersion of care across multiple providers for a typical Medicare beneficiary, fostering a sense of shared accountability across providers and settings for an episode of care may prove challenging. This may be particularly true whself as primarily responsible for delivering the recommended care (e.g., a cardiologist may not view her/himself as responsible for ensuring that a woman receives a mammogram).
Most proposals in the literature acknowledge the need to risk-adjust (i.e., adojust for differences in patient populations across providers) episodes of cre for payment and some en a provider represents only a small fraction of all the care delivered and/or does not view her/himtypes of performance measurement, particularly for outcome measures. Hwever, little detail on the spaecific risk-adjusters that should be used is provided. Most of the experts also believed that risk adjustment is very important to episode-based approaches—whether the application is for payment or performance measurement. They felt that risk adjustment was necessary to prevent risk selection by providers and/or insurers.
The risk adjustment literature indicates the results of risk-adjustment are sensitive to the specific patient characteristics included and data sources used (Stuckenborg et al., 2007; Shahian et al., 2007). Some articles stated that when the focus is on cost/resource use, it is appropriate to use adjusters that explain variation in the time and costs of services provided (Goroll et al., 2007; Network for Regional Healthcare Improvement, 2007) , while in the context of performance measurement for intermediate and long-term outcomes of care, adjusters should focus on differences in the severity of illness. This suggests that two separate sets of risk adjustment may be required if jointly assessing episode-based clinical quality and resource use.
While there is general agreement about the use of risk-adjustment for payment and outcome measures, there is less of a consensus around its use for process of care measures. Some have argued that some process and intermediate outcome measures are influenced by disease severity as well as patient behavior, such as nonadherence, and that social, cultural, and economic factors influence decisions to seek care and to comply with recommended actions. Absent a method to address differences in the mix of patients treated across providers, this could create incentives for providers to avoid such patients ( Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2007). However, the issue of risk adjustment needs to be carefully balanced against reducing incentives to providers to reduce health care disparities, which could occur if the risk model adjusts out the undesired variation (differences in care that could be influenced by provider behavior). The IOM identified risk adjustment and its appropriate use as an area requiring additional research in its report Rewarding Provider Performance (Institute of Medicine Committee on Redesigning Health Insurance Performance Measures, 2007). In our discussions, many of the experts emphasized the difficulty of risk adjustment for care provided over the course of an episode of care, often in multiple settings. For this reason, other methods for minimizing risk, such as special treatment of outliers, were identified as necessary by several experts.
We conducted a series of analyses using episodes of care generated by two commercial episode groupers, Symmetry ETGs and Thomson MEGs to explore issues related to constructing and using episodes of care the purposes of measurement and aligning incentives to deliver high quality care. The study population for this work consisted of FFS beneficiaries who were continuously enrolled in Medicare from 2004-2006 and whose 2005 primary residence was in Florida , Oregon or Texas .
The episode groupers utilize the primary diagnosis on claim line items to create and place the line items into an episode. Only certain types of claims can start an episode such as an inpatient admission or an Evaluation and Management (E&M visit). Chronic condition episodes are predetermined to be of one-year duration. For other episodes that do not represent a chronic condition, they are defined by having a “clean period” during which no claims for that condition can appear before a new episode of the same type can start.
Our analyses focused on individuals with a diagnosis of one of nine clinical conditions that were purposively selected to illustrate various issues, such as discrete time-limited events that might entail fewer providers and/or settings, chronic conditions of long duration that might involve management by a broad collection of providers, and complex events that would likely entail care provided across an array of settings of care. The nine conditions were:
For each individual with one of the nine clinical conditions, we categorized all of their episodes that were constructed by the grouper tools into those that were “related” to or “unrelated” to the condition for which they were selected. It should be noted that the results that we observed are, in part, related to how the episode grouper tools define what claims get assigned to an episode (i.e., the underlying grouper logic used to construct an episode) as well as variations in coding practices among providers in what diagnosis they code as primary versus secondary (and the completeness of this coding). The primary diagnosis drives the start of an episode of a particular type.
The key findings from our analyses are:
There are a number of ways in which episode-of-care based approaches to performance measurement and payment potentially could be incorporated into Medicare—in the near term within existing Medicare payment and program structures as well as over a longer period of time, by building capacity and through reform of existing structures. Although not an exhaustive list, we present some options for consideration:
There is an absence of solid empirical work related to and few real-world applications of episode-based approaches that provide guidance on how best to construct and apply episodes of care in the context of performance measurement and/or payment policy. The work done within this project was exploratory in nature and represents only a first step in a much larger process to flesh-out episode of care-based approaches to performance measurement and payment. The findings contained in this report reflect the design features of the two commercially available grouper software tools that were used to construct episodes in this project. Other types of episode constructions could yield different results. Additionally, some of the observed variation in results across states may be an artifact of variations in coding practices in different regions and future work should attempt to understand the extent of variation in coding practices.
Our exploration highlighted a number of issues and gaps in the knowledge base where additional research studies and/or testing in the form of small pilot studies or demonstrations could further advance Medicare’s capabilities to apply episodes of care in various ways to drive improvements in quality and cost-efficiencies. Areas for additional work that could be considered are described in more detail in Chapter 6.
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Last Updated: 09/05/2009