Current Medicare performance measurement and payment policies are structured in ways that foster setting-based, provider-centric care delivery, as their design emphasizes measurement of and payment for individual services delivered by individual providers in separate settings of care. These design features foster and reinforce a silo-based approach to care management, which contrasts sharply with an average Medicare beneficiary's care needs and care experiences. As the analyses in this study reveal, Medicare beneficiaries frequently have multiple, complex chronic conditions and typically receive care from multiple providers, who often practice in different settings of care. Beneficiaries' needs might be better service by a more coordinated and integrated approach to care delivery.
Existing payment and accountability structures pose challenges in being able to close the quality gap and provide cost-efficient care to an ever-growing population of Medicare beneficiaries. Silo-based approaches to performance measurement, accountability and payments do not provide the stimulus to deliver care in a patient-centered and coordinated fashion. Recent reform proposals have called for approaches that would better align and strengthen provider incentives (both financial and non-financial) to deliver care in a more proactive and holistic way (Baucus, 2008). Applying episodes of care as the basis for performance measurement, accountability and payment is one potential reform mechanism that could drive the system towards a more patient-centered care focus, improve quality and lead to improved efficiencies in the use of resources. Additional research is needed to examine the practical application and implementation options of an episode-based approach to Medicare FFS.
This report summarizes the findings from an exploratory examination of issues related to the construction of episodes of care for different clinical events/conditions and the potential application of episodes within Medicare for payment and performance measurement purposes. As we summarize the key lessons that emerged from our review of the literature, expert discussions, and data analyses and consider the policy implications, we do so within the framework of a building block approach to constructing and applying episodes of care that was outlined at the start of this report. - 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.
Key Findings and Implications
This study identifies a number of important issues that need to be examined in more depth, should Medicare decide to pursue any of the possible paths towards using episodes of care as a basis for performance measurement, accountability, or payment. We highlight seven important findings and consider their implications with respect to constructing and applying episodes of care for various purposes. We remind readers of this report that the observed results are, in part, related to how the commercial 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. - Alternative types of episode constructions could yield different results.
Potential Applications of Episodes of Care Along a Continuum of Policy Reform Options
Using a building block approach, one could build an episode by starting narrowly to reflect the services delivered by one provider in a single setting for a specific illness or injury, then expand 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), and finally encompass the entire continuum of services received across multiple settings and providers for treatment/management of a specific condition. Other variations along this continuum could also be considered. As one explores different types of episode constructions, it is worth noting that depending on the application, the episode constructions could be identical or differ. How an episode is ultimately constructed will be contingent on the feasibility of the approach, the proposed application, and desired policy objectives.
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:
- Near Term Applications of Episodes of Care
- Adopt a holistic, patient-based approach to measuring performance. In the near term, there are multiple adjustments that could be made to Medicare's existing performance measurement systems to create a more holistic, patient-based approach to performance measurement. Specific actions could include:
- (1) Build out Medicare's performance measures to cover the entire care trajectory for patients with specific conditions as they move across provider settings (i.e., this moves measurement away from an individual setting focus to one that follows the patient as he/she is being managed across various care settings and encompasses the full range of care a patient with a given condition might receive). The investments that CMS is making in measure development over the next five years will make an important contribution to filling existing gaps and aligning measures across settings to enable an episodic approach to measurement;- as this work progresses, CMS could consider an episode construct as a way to frame decisions about where to invest its measure development resources. Additionally, CMS could work to construct and add measures that address care transitions in the near term as a means to encourage greater coordination among various providers across a patient's episode, leveraging the work that is starting under the 9th Scope of Work for the QIOs.
- (2) Coordinate and align measurements both within and across settings for management of the same condition (in the building block approach this would include aligning measurement accountabilities for the physician(s) and hospital for an inpatient admission, and more broadly to encompass all providers and settings that are involved in care for a given episode).
- (3) Integrate measures to address care trajectories for patients with multiple conditions to create a more holistic approach to care management. For example, ischemic heart disease is a highly prevalent condition among Medicare beneficiaries, which typically involves managing a cluster of issues/events such as hypertension, lipid levels, cerebrovascular disease, heart failure, and heart attack.
- (4) Bundle measures within an episode framework for a given clinical condition, so that patients and their providers can understand what appropriate care represents across an entire episode of care. Condition specific measure maps that cut across settings would make it explicit to providers what their designated role is in affecting the quality of care for patients with particular conditions. To achieve maximum impact in the near term, the measure development and integration work could start by focusing on those clinical conditions that represent the greatest volume and/or costs to the Medicare program. For example, although osteoarthritis and sepsis were among the ten most expensive conditions in the hospital for Medicare beneficiaries in 2005 (AHRQ, 2007), there are no hospital measures currently reported for these conditions.
- Measure the totality of care delivered within an episode and provide this feedback to all providers who touched the patient within the episode. Today, when measured, providers see only their particular slice of the "whole," and what is missing is the full picture of how the patient is managed during an episode. In the near term, CMS may want to experiment with a small number of conditions where measures currently exist to test the feasibility of such an approach and to flag gaps in measures across the various settings where care is being delivered. At the beginning, CMS could adopt a building block approach to this work, such as by providing feedback to both the hospital and physicians within a narrowly defined hospital admission or by providing feedback to ambulatory care physicians and hospitals who are involved in care related to a hospital admission. Then over a longer period, as Medicare builds out its capacity to measure care more broadly to address an array of conditions across settings and works to coordinate those measurement efforts across settings, it could expand the set of conditions for which it could assess care over a broader episode construct. The long term goal would be to develop and provide a feedback report that would encompass the totality of care processes that should occur in managing a patient's condition across an entire episode and highlight for all providers involved how well a patient was managed. Initially, this feedback could be done confidentially and provide comparisons to how patients with similar care trajectories are being managed in the broader community. This internal feedback would highlight variations in practice and could stimulate a discussion among providers about ways to improve quality through better care coordination, enhanced system integration, and sharing of best practices. Such information could also stimulate the formation of more explicit relationships among providers for improved coordination and care management.
- Implement performance-based financial incentives (i.e., pay-for-performance) within Medicare for individual provider types and/or settings that include measures of care transition and coordination. Medicare could create setting specific P4P programs that include a focus on care coordination and care transitions between settings. Such programs could use existing measures as a foundation, with additional measures of coordination and transition added as they are developed. This approach does not have any requirements for the types of provider organizational structures that could participate, so could be implemented in the current FFS provider structure.
- Mid-Term Applications of Episodes of Care
- Educate Medicare beneficiaries about consensus-based "right care" pathways in management of conditions. - Patients and their families can be advocates to ensure that the right care is delivered. CMS is investing considerable resources over the next five years to increase the number of performance measures that are available to assess the quality of care across a larger number of conditions, provider types, and settings of care and make this information available to Medicare beneficiaries. As the capacity to identify what the right care looks like for an entire episode of care for a given clinical condition increases, such consensus-based information (i.e., "right care" maps) could be shared with patients and their family members to enable them to advocate for and hold the system accountable for delivering high-quality care.
- Create public accountability for performance by making results transparent. Medicare's current public reporting efforts could be consolidated and synthesized to report on the quality of care delivered within an episode of care for patients with selected clinical conditions. Spotlighting the performance of virtual groupings of providers within a community that excel in delivering the right care to patients would strengthen signals to other providers to improve.
- Implement episode-based financial incentives (i.e., pay-for-performance) within Medicare, tying together two or more provider types and/or settings. To strengthen join accountability and care coordination, Medicare could tie a small proportion of payment to performance for care delivered across some portion (i.e., using a building block approach) or the entirety of an episode. Preceding this type of application, work would need to occur related to measure development and coordination, constructing an episode-based framework for performance measurement, and determining how accountabilities would be assigned. Aligning financial incentives along an episode-of-care construct could encourage providers to be more explicit about their relationships with each other and their respective roles in ensuring that the right care is delivered in a coordinated fashion.
- Share savings for delivery of care within an episode with groups of providers to incentivize efficiency and performance. This approach would assign accountability for episodes of care across a group of accountable providers. If a group met its quality and cost savings targets, a portion of savings between a benchmark spending level and actual spending would be shared with the accountable unit of providers. Again, this application could start using a building block approach, such as by grouping providers within the ambulatory setting, then linking ambulatory physicians to hospitals, and finally linking physicians delivering care within the hospital and the hospital. Additional work would need to occur to define virtual groups that could serve as the unit of accountability. Building joint accountabilities and shared savings into the Medicare program might encourage health care providers to organize into virtual or actual integrated delivery systems, which tend to be more advanced in their use of information technology and other systems that facilitate coordination and information exchange across providers (Enthoven et al., 2007).
- Longer-Term Applications of Episodes of Care
- Change the unit of payment for some services to episodes of care, with adjustments for performance. To fully align payments across providers, with the goal of increasing coordination and encouraging increased efficiencies in delivery, "bundled payments" could be made for certain episodes of care, building on the model of the Medicare Acute Care Episode Demonstration. A small number of episode types could be used at first, building in additional episode types over time. A building block approach to episode definition could be used, beginning with bundled payment for hospital-based services only (as in the Acute Care Episode Demonstration), then building out to include care in other settings (e.g., post-acute care). The bundled payment approach could also be applied to episodes of care that do not involve hospitalization, such as outpatient surgery, Medicare post-acute care or chronic care. This approach could also consider adjusting the payment based on performance that occurs within the management of the entire episode. Virtual and actual integrated delivery systems are likely better positioned to be able to accept such payments in the near term; over time, episode-based payments may encourage health care providers to arrange into these structures.
Next Steps: Future Research and Demonstration Work
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. 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.
Although not an exhaustive list, additional research that could be considered includes:
On a limited basis, explore how to define episodes of care: HHS could select a limited (e.g., 5-10) number of high volume/high cost clinical conditions, and explore how to define episodes using different build outs per a building block approach (e.g., hospital-based only including hospital and physicians, ambulatory and hospital providers, etc.). The purpose of this work would be to test the face validity of different episode constructs with physicians and institutional providers. Providers would be asked to consider the various constructs as they apply to the various functionalities that HHS is exploring, such as aligning measurement activities, profiling physicians, building financial incentives, and bundling payments. This work could help flag potential problems with various approaches and help engage providers in the development process. As part of the work to define how to construct episodes, consideration will need to be given to how to distinguish different types of episodes, such as chronic episodes with acute exacerbations, strictly chronic episodes, and strictly acute episodes (among others). Such distinctions might be important depending on the actual application of the episodes, such as whether the episodes are being used for performance measurement or for payment.
- Construct a detailed measure mapping across provider types and settings (within conditions) and identify gaps: Prior to the application of performance measurement within an episode context, it will be important to understand what could be drawn from existing measures portfolios that could be applied within an episode construct for various types of clinical conditions, through a detailed measure mapping exercise. This work would identify areas that could be measured in the near term using an episode-of-care-based approach, and highlight measurement gaps that could be addressed through HHS' existing five-year initiative to develop performance measures across all settings of care in which Medicare beneficiaries receive services. - Such a mapping would provide policy guidance to the development process, by providing a framework for measure development. The mapping could also be shared with providers to obtain their feedback on the next generation of measurement that is more holistic in its orientation.
- Define what constitutes an accountable unit for an episode of care: There is limited understanding of and consensus around what would define an organization/system of care that could be held accountable for care delivered within an episode of care. In more highly integrated systems of care in which providers are already linked organizationally and financially, accountabilities may be easier to define; however, these types of systems represent a small fraction of all providers participating in the FFS Medicare program. In most cases, there are either loose configurations or an absence of explicitly defined relationships between providers. Work could be done to test the feasibility of forming virtual groupings of providers that could be held accountable for care delivered within an episode. This type of study could examine, for a small number of conditions across a handful of local health care markets, where Medicare beneficiaries are receiving care (mapping of care within a community) and then could use this information to construct virtual provider groupings. Examining implicitly defined care arrangements (actual care seeking patterns) in a FFS world may help shed light on whether there is a complete absence of groupings of providers within a community or if patterns that emerge that could be used to form the basis of an accountable unit.
This work would allow HHS to test the feasibility of being able to expand out beyond the minority of highly integrated delivery system to all types of settings/locations the notion of an accountable group of providers who could be held responsible for performance and/or payment purposes. Given variation in types of inter-relationships and connections between providers in a local health care market, the proposed work would explore whether virtual groups are a viable concept. This work could explore with providers differences between patient-driven (empirical analysis of actual care seeking patterns) versus provider-driven (how providers see themselves as related within a community) patterns of care to define the virtual group.
- Test impact of varying attribution methods: For a limited set of conditions and using various building block episode constructions, HHS could construct episodes of care and assign the episodes to various providers under alternative attribution methods. This work would comprise both empirical analyses of the results of alternative attribution approaches and tests provider acceptance of various assignments with providers. This testing work should consider a mix of different types of clinical conditions that will involve more/fewer number of providers, to illustrate the complexities and challenges that may arise. - The work could also explore the feasibility of mapping Medicare physicians to physician groups for the purposes of testing the feasibility of using the group as the unit of accountability.
- Design and test episode-based performance measurement with providers: HHS could identify a small number of clinical areas, define what constitutes an episode, identify associated performance measures applicable to the episode, generate episode-based performance scores, and attribute the episode scores to both integrated and virtual teams of providers. The test output could be used to test provider acceptance of information packaged this way with groups of providers and to solicit their feedback about how to design such reports and how this information would be used by them. This work could explore the implications of various attribution methods using both narrow and broad episode constructions, per a building block approach.
- Test alternative severity adjustment methods applied in the context of episodes of care: Severity adjustments will be required to level the playing field for both performance measurement (i.e., in assessing clinical outcomes) and in establishing payment that are fair. While severity adjustment has been used in the context of predicting annual expenditures for Medicare beneficiaries (i.e., the HCCs) and in constructing clinical outcome measures of performance (e.g., risk-adjusted mortality rates), little work has occurred to examine how an episode of care as the unit of analysis might be adjusted to account for differences in the severity of patient episodes that would be assigned to various accountable unit(s). Our analyses found that applying the HCCs to episodes constructed from commercially available grouper software had little predictive power in estimating the expenditures for an episode (R2 of 0.03). It will be important to test alternative approaches to severity adjustment of episodes of care at the patient level, assessing the predictive power of the alterative models in the context of payment and performance measurement applications. This modeling work would need to consider variations by each type of episode, as different factors will be in play for diabetes versus hip fracture as an example.
- Conduct a series of qualitative discussions with physicians related to structuring linked pay for performance incentives: As a means to start linking the behaviors of providers who care for patients, HHS could engage physicians and hospitals in commenting on various scenarios that explore the creation of joint financial incentive payments--such as with the SNFs and rehabilitation facilities that are routinely used for post-acute care. These qualitative discussions could also explore issues that might be involved in holding physicians responsible for quality metrics across related types of care.
- Generate simulation models of episode-based payments: HHS could use existing Medicare claims data to conduct a series of empirical simulations of alternative bundled payment configurations. The simulation modeling should explore the level of variation across providers in the types of episodes for which they would be responsible and what the implications might be in terms of bearing the financial risk. This would be especially germane for small providers who would lack the ability to absorb large financial risks, and may highlight a need to create re-insurance or outlier payment mechanisms to mitigate risk. Simulation modeling could serve to illuminate where risk would occur and help to identify strategies that would mitigate undue risks to providers. This work could inform the design of additional bundled payment demonstrations.
- Test the feasibility of a bundled payment to providers who are not organized under a common financial entity: Through a series of qualitative discussions, HHS could obtain feedback from providers to understand the practical issues that would arise in an environment where a bundled payment exists for an episode and yet the providers caring for the patient during this episode are not operating under a single financial entity.
- Expand out current bundling demonstrations, such as the Acute Care Episodes (ACE) demonstration: HHS could develop additional bundled payment pilot projects, by expanding the clinical areas covered by the ACE demonstration as well as broadening out the set of provider settings within the demonstration. For example, a demonstration could explore bundling of ambulatory care only episodes or bundling episodes that include ambulatory and one or more other settings for a discrete set of conditions.
- Conduct further empirical analyses of care delivered to beneficiaries outside their primary state of residence: Because approximately 12 percent of care for the conditions we examined involved care delivered outside the beneficiary's primary state of residence, more work is required to understand how much of this care represents referral care, a snow-bird migration effect, or typical day-to-day cross boarder care for residents who live close to state boundaries. This work would focus on highlighting challenges that would be involved in linking together providers into "virtual" units of accountability when they are not necessarily geographically proximate.
- Conduct analyses to understand reasons for geographic variation: The observed variation in the number of episodes and the payments per episode signal a need for additional work to understand the sources of variation. Variations due to differences in practice patterns would be ripe for applying policies to dampen down on unnecessary variation. Variations due to differences in population characteristics (e.g., sickness level) will need to be considered in any episode-type application, to prevent unintended consequences such as avoiding caring for sicker patients.
- Test the development of composite measures of performance within episode types: As various performance measures are compiled across an episode, these measures could be summarized into related groupings or composite measures to strengthen the ability to reliably measure performance and to winnow down the amount of information that is potentially shared with consumers. Various approaches are available to create summary measures, including an opportunities model (i.e., what proportion of the time was recommended care delivered within the population), an appropriate care model (i.e., what proportion of the time was all the recommended care delivered to patients with a particular condition) or something more complex in which there is an explicit weighting of the measures within the composite measure to reflect the differential importance of various care processes. This type of study could also explore what is the public health impact of providing various services and the ways in which physicians should focus their time and resources to achieve maximum benefit. Within an episode construct, HHS could convene physician panels to weight the various measures in terms of their clinical importance and consider how to handle patients with multiple comorbidities related to prioritizing measures.