Exploring Episode-Based Approaches for Medicare Performance Measurement, Accountability and Payment Final Report. Types of Episode Constructions that Have Been Used


(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 where this type of episode construction has been used for payment and in some cases for quality measurement for coronary artery bypass graft (CABG) surgery.

  • Geisinger. This Integrated Delivery System (IDS) recently began accepting payment for all care related to CABG surgery, including preoperative evaluation and workup, inpatient facility and physician services, routine postoperative care, and treatment of complications (Casale et al., 2007; Lee, 2007). The price for the bundle of services was set at a level calculated to cover treatment for 50 percent of the historical rate of complications. Geisinger also guaranteed adherence to 40 processes of care performance measures for CABG, and used adherence to delivering the right care as a basis for a portion of surgeons' payments (Casale et al., 2007). The 40 care processes that are measured were derived from practice guidelines by the Geisinger cardiothoracic surgeons. In the three months following implementation, the team increased adherence from 59 to 100 percent of patients receiving all 40 recommended processes of care. In preliminary results, patients receiving surgery after program implementation experienced fewer adverse events, more discharges to home, and shorter average length of hospital stay compared to otherwise similar Geisinger CABG patients
  • Medicare Participating Heart Bypass Center Demonstration. This demonstration, conducted in the early 1990s, tested payment for an episode that included all inpatient and physician services during hospitalization, readmissions within 72 hours, and related physician services during the 90-day global period, but not other pre- and post-discharge physician services (Liu et al., 2001). Payment was made to the hospital, with the hospital and physicians free to divide the payment as they chose (Cromwell et al., 1998). The payment rate was determined through a competitive bidding process (Cromwell et al., 1998). An evaluation of the demonstration's effects on hospital costs found that participating hospitals reduced direct variable costs over the three-year demonstration period and that physicians changed their practice patterns to improve efficiency (Liu et al., 2001). The Medicare program saved an average of 10 percent for bypass patients in demonstration hospitals compared to the predicted Medicare payments in the absence of the demonstration (Cromwell et al., 1998). In-hospital and one-year mortality rates declined in demonstration hospitals after adjustment for patient risk factors, but the rate of reported complications increased slightly (Cromwell et al., 1998). The appropriateness of the CABG procedures was also assessed, but the rate did not change during the demonstration. Finally, CABG patients reported better overall experiences in demonstration hospitals compared to competitor hospitals, and did not report significantly different health outcomes (Cromwell et al., 1998).
  • Texas Heart Institute. The Texas Heart Institute accepted a bundled CABG payment similar to that used in the Medicare Participating Heart Bypass Center Demonstration from several private insurers, and later participated in the Medicare demonstration.  This arrangement was later expanded to other high-volume cardiology procedures with defined beginning and end points.  Standardized diagnostic tests and appropriate optional services were established for each major service and included in the fee, although the treatment standards were sometimes hard to adhere to because of patient diversity (Edmonds and Hallman, 1995).  No quality measures were reported.  In 1985, the combined facility and physician payment in this program were $13,800 per CABG procedure, compared to an average Medicare payment of $24,558 (Edmonds and Hallman, 1995).
  • Medicare Acute Care Episode Demonstration. Medicare is targeting a 2009 implementation for a demonstration that will provide global payments for acute care episodes for orthopedic and cardiovascular inpatient procedures.  The Acute Care Episode (ACE) demonstration will provide a bundled payment for both Part A and Part B services provided during a hospital stay, and will possibly include post-acute care in later years.  Prices for the bundled payment will be established through competitive bidding.

(2) Services Related to an Outpatient Procedure.  In the Cataract Alternative Payment Demonstration, which operated 1993-1996, 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.  The response rate to the demonstration solicitation was very low (3.7 percent).  Episode payment rates were negotiated with three participating providers; the payment rates were modestly discounted from non-demonstration payment rates for the same services (2 to 5 percent discount).  Patient-level clinical and utilization data were collected using checklists.  There was no evidence that service utilization decreased among participating providers during the demonstration compared to a baseline pre-demonstration period.  There was also no impact on patient outcomes (e.g., visual acuity, post-operative complications) that could be attributed to the demonstration.

The evaluation contractor, Abt Associates, concluded that the demonstration was a success in meeting its objectives including allowing provider flexibility in managing bundled services, creating incentives for cost-effectiveness, reducing government involvement in pricing services through competitive bidding, and providing insight into quality assurance (Abt Associates Inc., 1997).  However, the potential for producing savings while maintaining or improving the quality of care for an episode of cataract surgery was limited, as evidenced by the low participation rate, strong opposition to the demonstration from organized medicine, the low level of savings produced compared to the Participating Heart Bypass Center Demonstration, and the lack of impact on utilization or patient outcomes.  These results may have been due in part to declining Medicare cataract surgery payment rates in the years preceding the demonstration, and the low cost of cataract surgery compared to CABG (Abt Associates Inc., 1997).  These findings suggest that the potential for achieving the goals of episode-based payment and performance measurement may vary widely between types of episodes.

(3) Contact Capitation for Specialists.  In the 1990s, several descriptions were published of "contact capitation" payment arrangements between managed care organizations and specialists in group practices.  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).  This type of episode begins with the referral to the specialist and ends after a specified time or clinical endpoint.  This method differs from simple capitation in that payment is only triggered if the referral is made (episode begins) and that the provider is only at risk for patients being actively treated for a given condition ("technical risk").  Under simple capitation, the accountable provider assumes the health risks of the defined practice population ("probability risk").  Under contact capitation, the insurer retains the probability risk, but the provider assumes the technical risk for the care episode.  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 because of the need for new billing systems that were able to link related services together, and differentiating the bundled services from others that would be paid on a FFS basis (Frank and Roeder, 1999). The literature reviewed did not include any descriptions of quality measurement tied to contact capitation.

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