Exploring Episode-Based Approaches for Medicare Performance Measurement, Accountability and Payment Final Report. The Potential Use of Episodes of Care as a Unit of Measure


Efforts to focus on an episode of care for a patient attempt to change the current fragmented environment which is service oriented to one that takes a more holistic view of the care process. A recent Institute of Medicine (IOM) report entitled Rewarding Provider Performance: Aligning Incentives in Medicare recommended that “CMS should build towards an ultimate vision of aggregating funds for rewards into one integrated pool that would accommodate shared accountability and encourage coordination of care” and that the current measure sets “…should evolve over time to provide more comprehensive and longitudinal assessments of provider and system performance” (IOM, 2007). 

For the purposes of this discussion, we define an “episode of care” as a series of health care services for a Medicare beneficiary that are related to the treatment of a specific illness or injury (e.g., the treatment of a specific acute illness or the ongoing care for a chronic disease). The way in which the definition of an episode is operationalized could vary making the defined unit of measurement more or less expansive. An episode of care could be narrowly constructed to reflect the services delivered by one provider in a single setting for a specific illness or injury, broadly constructed to encompass the entire continuum of services received across multiple setting for a specific condition, or could be constructed to reflect something between these two ends of the spectrum.

There are a range of services that could be included in an episode of care, making the defined unit of measurement more or less expansive. At one end of the spectrum would be an episode that includes the services delivered by one provider in a single setting. A current example of this type of episode construction is a Diagnosis Related Group (DRG) used by CMS for making payments to IPPS hospitals; the DRG includes all of the facility services for an inpatient stay. An example of an intermediate stage could be an episode construction that captures the facility services as well as the physicians services provided during an inpatient stay. An expansive episode of care construction would include the continuum of Medicare services a beneficiary receives for a condition. An example of an inclusive episode could be one that reaches beyond the inpatient stay to capture post-acute care that is delivered to the patient.

There are a variety of approaches that could be used to move towards the IOM vision of shared accountability and coordinated care. For example, performance measurement programs could be designed to assess the care delivered across the entirety of an episode and be aligned across different types of providers. Another mechanism is to link payment to episodes of care (Davis, 2007), with the payment rate adjusted based on performance measures such as clinical quality and patient experience (Schoen et al., 2007; MedPAC, 2008).  The Commonwealth Fund estimates that by linking payment to an episodes involving hospitalizations that include inpatient, physician and related services from the time of admission through a post-discharge period (e.g. 90 days) and using the 75th percentile of the Metropolitan Statistical Area (MSA) with the lowest severity-adjusted Medicare costs nationally to set payment rates would save $96.4 billion over five years and $229.2 billion over 10 years (Schoen et al., 2007). This proposed approach does not link any quality or outcome measures to the episode.

CMS is in the process of developing a Medicare demonstration that will test a competitive bidding approach to determining global payments (i.e. a single overall payment) for acute care episodes for select orthopedic and cardiovascular inpatient procedures. After the first year of the demonstration, CMS and the demonstration sites may consider extending the episode of care to include some post-acute care services as well.

View full report


"report.pdf" (pdf, 1.02Mb)

Note: Documents in PDF format require the Adobe Acrobat Reader®. If you experience problems with PDF documents, please download the latest version of the Reader®