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.
Performance Measures Currently Reported to Medicare
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
Proposed Uses and Current Applications of Episodes of Care
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?
Findings from Exploratory Analyses of Constructed Episodes
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:
- Acute myocardial infarction
- Bacterial pneumonia
- Breast cancer
- Cerebrovascular disease
- Chronic obstructive pulmonary disease
- Congestive heart failure
- Hip fracture
- Low back pain
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:
- Medicare Beneficiaries Have a Large Number of Different types of Episodes per Year: Beneficiaries with the nine conditions experienced an average of 10 episodes of any kind during the measurement year, most of which were not related to nine conditions of focus in this study. Many of the unrelated episodes were common among a large proportion of beneficiaries across the nine study conditions, such as hypertension, congestive heart failure, and fungal skin infections. The large number of episodes per beneficiary raises questions about the degree to which care for a particular beneficiary should be examine holistically, or alternatively split into small units of analysis. It is unclear whether physicians and other providers would view a beneficiary’s multiple episodes as defined in this study as distinct issues to be managed separately or as related issues to be managed jointly. If providers view certain episodes as related issues that should be managed jointly, (e.g. episodes of ischemic heart disease, hypertension, and hyperlipidemia), then it may be appropriate to expand episode definitions to group related conditions for some applications. One possibility would be to create bundles of episodes that commonly co-occur and are jointly managed. An issue that needs to be considered but which was not addressed in our analyses is whether the same provider would be attributed primary responsibility for multiple different episodes.
- Standardized Payments per Episode Varied Widely Across and Within the Nine Conditions. An inverse relationship was observed between standardized episode payments and the coefficient of variation, a measure that identifies the amount of variation in payments between episodes related to the same condition. Thus, there is wide variation in what is happening to patients within episodes of the same type that were constructed using commercially-available software grouper tools, suggesting a fair amount of heterogeneity in care practices and/or types of patients being treated. We used fairly broad groupings of patients based on the nine conditions. Heterogeneity might be reduced if subgroups of patients were created within a given condition. For example, instead of grouping together all diabetics, one could separate diabetics into categories based on the degree of advancement of their disease and other existing comorbidities to address differences in the management of these individuals. The amount of variation observed in the analyses suggests a need to understand the sources of variation in standardized payments, and which sources need to be accounted for in the episode construction or patient group creation versus sources of variation that could be reduced through the application of episodes for performance measurement or financial incentives.
Beneficiaries who experienced a greater total number of episodes (both related and unrelated to conditions of focus) had higher average standardized payments per episode and more providers involved in the delivery of care for each episode related to the conditions of focus. This finding highlights the need to consider not only risk-adjusting for the severity of the specific condition of focus, but also the other conditions experienced by the beneficiary.
- The Care Trajectory and Number of Settings Involved varies by Condition and within Episode Types. Across the nine conditions, there was no standard care pattern of the types of providers and settings involved for the related episodes; some conditions were more heavily focused on care delivered in an ambulatory setting, while others involved care delivered in ambulatory, hospital, and post-acute care settings. Even for patients with the same condition, there was substantial variation in the types of settings involved, and it is unclear how this variation in care trajectories would be affected if episode constructions within the same condition were less heterogeneous (i.e., creating more homogeneous subgroups of patients within an episode category). Often care cuts across three settings of care for any given condition and almost 60 percent of hip facture episodes involved more than four settings or provider types, highlighting the importance of care coordination among providers in different settings. During a single episode of care for a particular condition, the care provided was often dispersed among multiple specialists; however, for the nine conditions reviewed in this study, most involved a median of one primary care physician (PCP). These PCPs could potentially provide a foundation for coordinating the care for a beneficiary, if the PCP is also managing care for other episode types a beneficiary may experience. This study did not use a cross-condition approach to examine whether there were multiple PCPs involved in managing a beneficiary’s care across episode types; future work should explore whether there are multiple different PCPs involved in managing care across the entire set of episodes for any given Medicare beneficiary to ascertain whether a single PCP exists to coordinate care.
- Different methods for assigning responsibility for an episode (i.e., attribution) yielded different results. A significant fraction of episodes could be assigned to a provider for most of the attribution rules we tested. Variation was observed in the proportion of the episodes that could be assigned depending on the rule and the type of condition; some conditions are addressed primarily in an ambulatory setting, so facility-based attribution rules led to the assignment of a smaller share of episodes of these types. Depending on the condition, we observed that multiple providers delivered services in most episodes and that some providers represent only a small fraction of total episode payments. Therefore, it is often difficult to determine which provider or setting of care may have had the most responsibility for managing the care and resources within the episode. For example, for episodes where the majority of episode costs are facility costs, which physicians should be held accountable if one were to use a single attribution model? Should it be the physician who managed the patient in the facility or the physician who managed the physician prior to the admission or both? Further, should the facility also be accountable for the episode costs? While most methods of attribution rely on determining which physician may have had the most responsibility, some episodes were comprised primarily of facility costs and therefore it may be important to consider attribution to facilities or multiple attribution to providers and facilities. Given variation in the composition of provider types and settings and the extent of involvement of various providers in the management of episodes for different conditions, attribution rules may need to be tailored to the type of episode to ensure that the assignment aligns with provider roles and responsibilities in managing an episode. A single attribution approach for all types of episodes may not be appropriate. Attribution rules may need to vary depending on the manner in which the information is used and other policy considerations. For performance measurement, multiple attribution could serve to encourage joint responsibility and improvement among all. For resource utilization, the ambulatory physician who could prevent a hospital admission may be appropriate, while for bundling of payment, the entity or entities most able to manage the bulk of the dollars may be a more important consideration.
- State-level Variation Exists and Care within Episodes Cuts Across State Lines: There was variation across the three states in the average number of episodes per beneficiary, both overall and for the subset of beneficiaries with each of the nine conditions, the average standardized payments per episode, the involvement of different post-acute care providers, and the percent of episodes for which beneficiaries received care outside of their state of residence. The mean number of total episodes of all types per beneficiary varied widely among the three states in our analysis, averaging 6.1 episodes per beneficiary in Oregon , 6.9 in Texas and 8.0 in Florida . Average 2005 per-capita payments were highest in Florida and Texas and substantially lower in Oregon . The average standardized payment per episode for the episodes related to the nine conditions varied in a consistent pattern across the nine conditions, with Oregon showing consistently lower average per-episode payments as compared to Florida or Texas . The reasons behind the observed geographic variations in per episode payments and frequency of episodes are unclear and likely reflect several sources of variation, including variations in the care management practices of providers, differences in the availability of and types of providers across health markets, and/or differences in the underlying health status of Medicare beneficiaries in the three states. For example, inpatient rehabilitation facility (IRF) care was more common for episodes in Texas , where these types of facilities are relatively numerous, use of SNFs was more common in Oregon and Florida . A better understanding of the sources of variation could inform the future development of episode-based approaches to quality measurement and payment.
Potential Applications of Episodes of Care Along a Continuum of Policy Reform Options
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.
Future Research and Demonstration Opportunities
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.