Our review of the literature on approaches to episode-based payment and performance measurement found that a wide variety of approaches have been proposed, in some cases with a long history. However, relatively few of the proposed approaches have been implemented and remain largely conceptual in nature. Several approaches have been tested in limited applications in the private sector or Medicare demonstrations. For example, bundled payment for an acute episode of care, accompanied by performance measurement in some applications, has been tested in the Geisinger Health System, Texas Heart Institute, and Medicare Participating Heart Bypass Center Demonstration for CABG surgery. These tests have produced favorable results on the costs and quality of care. However, another approach, the Medicare Cataract Alternative Payment Demonstration, had less favorable results, suggesting that effects may vary for different types of episodes. Other episode-based approaches, such as those based on chronic or preventive care episodes, have been proposed frequently but implemented in very limited applications. Earlier proposals, such as Physician DRGs and RAP DRGs in the 1980s, focused on payment approaches, while more recent proposals focus more on performance measurement, as performance measurement methodology has progressed.
Based on the findings of the review, we conclude that the most commonly used episode-based approach is physician relative resource use measurement using broad episodes of care defined via commercial grouper software. The measures have been used in reports to providers, public reports, and P4P incentive programs. However, very limited evidence is available in the literature on the validity of these approaches, and they have recently faced several legal challenges (Lacewell, 2007; Massachusetts Medical Society, 2008). Many of the experts we interviewed expressed the opinion that while reporting and P4P may have some benefits, larger financial incentives will be necessary to drive meaningful change in the health care delivery system.
A central challenge in episode-based approaches is attribution of accountability to one or multiple providers. A variety of attribution methods have been tested, finding that the results of attribution are highly sensitive to the methods. Some episode-based approaches that have been implemented, such as the Medicare Participating Heart Bypass Demonstration, use prospective designation of accountability, whereby providers assume accountability for a patient population before care is delivered. Episode-based resource measurement, on the other hand, typically uses retrospective attribution to single providers based on utilization and/or costs.
Experts were split on the relative merits of these two approaches. Proponents of prospective designation argued that this approach is necessary for providers to feel "ownership" of an episode of care, while proponents of retrospective designation argued that it enables participation of a larger number of providers, many of whom are not highly integrated with other providers.
Overall, the findings of the literature review suggest episode-based approaches to performance measurement and payment hold promise for improving quality and efficiency through increased coordination over the continuum of care. However, significant methodological and administrative barriers remain to widespread implementation of these approaches.