HCA 320 Module 2 assignment: data-informed discussion post: how payment methods shape care, a full sample

Module 2 Discussion: Initial Post

You Get What You Pay For: How Four Payment Methods Shape Care, and What Medicare's Joint Replacement Bundle Showed

Every payment method rewards something, and providers respond to what is rewarded. Fee-for-service pays for each visit, test, and procedure, so it rewards doing more. Per-case payment, such as Medicare's diagnosis-related groups for hospital stays, pays a fixed amount per admission, so it rewards shorter, cheaper stays but not fewer admissions. Under capitation, a provider receives one flat monthly payment per patient on its panel, whatever care that patient uses, so it rewards keeping people healthy and using less care, and it can also reward withholding care. Bundled or episode payment pays one amount for all care related to a defined episode, such as a hip replacement and the recovery that follows, so it rewards coordinating everything in the episode efficiently. Miller (2009) argued that U.S. payment systems reward volume rather than value, and proposed episode payment and condition-adjusted capitation as ways to avoid the problems of both fee-for-service and traditional capitation, while noting that many providers were not organized to accept them.

We now have good evidence on how one of these models works in practice. Medicare's Comprehensive Care for Joint Replacement model made hospitals in randomly selected metropolitan areas accountable for total spending on hip and knee replacement episodes. In the first year, the share of patients discharged to institutional postacute care, such as skilled nursing facilities, was 2.9 percentage points lower in the bundled areas than in the 33.7 percent seen in control areas, but total Medicare spending per episode, about $22,872 in control areas, was only $453 lower in the bundled areas, too small a gap to rule out chance (Finkelstein et al., 2018). The bundle changed where patients recovered faster than it changed what Medicare paid.

I take two lessons from this. First, payment changes behavior at the margin that providers control most directly; here, the discharge decision. Second, savings take time and depend on how the bundle is priced, since Medicare returns part of any savings to hospitals and the first year is a learning period. For a manager, the practical point is that a new payment model should be matched with a plan to change the specific decisions it rewards, such as discharge planning and home health partnerships, rather than expecting savings to appear on their own (Reiter & Song, 2021).

Question for the group: in your workplace, which payment method dominates, and can you point to one clinical or operational decision that you think is shaped by it?

References

Finkelstein, A., Ji, Y., Mahoney, N., & Skinner, J. (2018). Mandatory Medicare bundled payment program for lower extremity joint replacement and discharge to institutional postacute care: Interim analysis of the first year of a 5-year randomized trial. JAMA, 320(9), 892-900. https://doi.org/10.1001/jama.2018.12346

Miller, H. D. (2009). From volume to value: Better ways to pay for health care. Health Affairs, 28(5), 1418-1428. https://doi.org/10.1377/hlthaff.28.5.1418

Reiter, K. L., & Song, P. H. (2021). Gapenski's healthcare finance: An introduction to accounting and financial management (7th ed.). Health Administration Press.