The US healthcare system is rapidly moving toward rewarding value. Recent legislation, such as the Affordable Care Act and the Medicare Access and CHIP Reauthorization Act, solidified the role of ...value-based payment in Medicare. Many private insurers are following Medicare's lead. Much of the policy attention has been on programs such as accountable care organizations and bundled payments; yet, value-based purchasing (VBP) or pay-for-performance, defined as providers being paid fee-for-service with payment adjustments up or down based on value metrics, remains a core element of value payment in Medicare Access and CHIP Reauthorization Act and will likely remain so for the foreseeable future. This review article summarizes the current state of VBP programs and provides analysis of the strengths, weaknesses, and opportunities for the future. Multiple inpatient and outpatient VBP programs have been implemented and evaluated; the impact of those programs has been marginal. Opportunities to enhance the performance of VBP programs include improving the quality measurement science, strengthening both the size and design of incentives, reducing health disparities, establishing broad outcome measurement, choosing appropriate comparison targets, and determining the optimal role of VBP relative to alternative payment models. VBP programs will play a significant role in healthcare delivery for years to come, and they serve as an opportunity for providers to build the infrastructure needed for value-oriented care.
•We estimate the degree of supplier-induced demand for newborn treatment.•We exploit changes in reimbursement in which NICU utilization became profitable.•Hospitals increase NICU utilization by ...roughly five days.•Hospitals increase their manipulation of infant’ reported birth weights.•This induced demand substantially increases the reimbursements received by hospitals.
We estimate the degree of supplier-induced demand for newborn treatment by exploiting changes in reimbursement arising from the introduction of the partial prospective payment system (PPS) in Japan. Under the partial PPS, neonatal intensive care unit (NICU) utilization became relatively more profitable than other procedures, since it was excluded from prospective payments. We find that hospitals have responded to PPS adoption by increasing NICU utilization and by more frequently manipulating infants’ reported birth weights which in large part determine their maximum allowable stay in the NICU. This induced demand substantially increases the reimbursements received by hospitals.
DPC, which is an acronym for "Diagnosis Procedure Combination," is a patient classification method developed in Japan for inpatients in the acute phase of illness. It was developed as a measuring ...tool intended to make acute inpatient care transparent, aiming at standardization of Japanese medical care, as well as evaluation and improvement of its quality. Subsequently, this classification method came to be used in the Japanese medical service reimbursement system for acute inpatient care and appropriate allocation of medical resources. Furthermore, it has recently contributed to the development and maintenance of an appropriate medical care provision system at a regional level, which is accomplished based on DPC data used for patient classification. In this paper, we first provide an overview of DPC. Next, we will look back at over 15 years of DPC history; in particular, we will explore how DPC has been refined to become an appropriate medical service reimbursement system. Finally, we will introduce an outline of DPC-related research, starting with research using DPC data.
A final rule has been issued that increases Medicare fee-for-service payment rates for individuals experiencing homelessness. This rule provides new, incentivized opportunities to better screen for ...and document homelessness among patients in acute inpatient settings. With greater identification of homeless patients, there may be increased needs to develop comprehensive discharge plans that involve coordination with housing providers and social service agencies to prevent the high repeated use of acute care found among many homeless patients.
England, France, Germany, the Netherlands, and Sweden spend less as a share of gross domestic product on hospital care than the United States while delivering high-quality services. All five European ...countries have hospital payment systems based on diagnosis-related groups (DRGs) that classify patients of similar clinical characteristics and comparable costs. Inspired by Medicare's inpatient prospective payment system, which originated the use of DRGs, European DRG systems have implemented different design options and are generally more detailed than Medicare's system, to better distinguish among patients with less and more complex conditions. Incentives to treat more cases are often counterbalanced by volume ceilings in European DRG systems. European payments are usually broader in scope than those in the United States, including physician salaries and readmissions. These European systems, discussed in more detail in the article, suggest potential innovations for reforming DRG-based hospital payment in the United States.
Medicare pioneered add-on payments to facilitate the adoption of innovative technologies under its hospital prospective payment system. US policy makers are now experimenting with broader value-based ...payment initiatives, but these have not been adjusted for innovation. This article examines the structure, processes, and experience with Medicare's hospital new technology add-on payment program since its inception in 2001 and compares it with analogous payment systems in Germany, France, and Japan. Between 2001 and 2015 CMS approved nineteen of fifty-three applications for the new technology add-on payment program. We found that the program resulted in $201.7 million in Medicare payments in fiscal years 2002-13-less than half the level anticipated by Congress and only 34 percent of the amount projected by CMS. The US program approved considerably fewer innovative technologies, compared to analogous technology payment mechanisms in Germany, France and Japan. We conclude that it is important to adjust payments for new medical innovations within prospective and value-based payment systems explicitly as well as implicitly. The most straightforward method to use in adjusting value-based payments is for the insurer to retrospectively adjust spending targets to account for the cost of new technologies. If CMS made such retrospective adjustments, it would not financially penalize hospitals for adopting beneficial innovations.
Understanding how physicians respond to incentives from payment schemes is a central concern in health economics research. We introduce a controlled laboratory experiment to analyse the influence of ...incentives from fee-for-service and capitation payments on physicians’ supply of medical services. In our experiment, physicians choose quantities of medical services for patients with different states of health. We find that physicians provide significantly more services under fee-for-service than under capitation. Patients are overserved under fee-for-service and underserved under capitation. However, payment incentives are not the only motivation for physicians’ quantity choices, as patients’ health benefits are of considerable importance as well. We find that patients in need of a high (low) level of medical services receive larger health benefits under fee-for-service (capitation).
Diagnosis-related groups (DRG) based hospital payment systems are gradually becoming the main mechanism for reimbursement of acute inpatient care. We reviewed the existing literature to ascertain the ...global use of DRG-based hospital payment systems, compared the similarities and differences of original DRG versions in ten countries, and used ischemic stroke as an example to ascertain the design and implementation strategies for various DRG systems. The current challenges with and direction for the development of DRG-based hospital payment systems are also analyzed. We found that the DRG systems vary greatly in countries in terms of their purpose, grouping, coding, and payment mechanisms although based on the same classification concept and that they have tended to develop differently in countries with different income classifications. In high-income countries, DRG-based hospital payment systems have gradually begun to weaken as a mainstream payment method, while in middle-income countries DRG-based hospital payment systems have attracted increasing attention and increased use. The example of ischemic stroke provides suggestions for mutual promotion of DRG-based hospital payment systems and disease management. How to determine the level of DRG payment incentives and improve system flexibility, balance payment goals and disease management goals, and integrate development with other payment methods are areas for future research on DRG-based hospital payment systems.
Objective
To measure variation in payment rates under Medicare's Inpatient Prospective Payment System (IPPS) and identify the main payment adjustments that drive variation.
Data Sources/Study Setting
...Medicare cost reports for all Medicare‐certified hospitals, 1987–2013, and Dartmouth Atlas geographic files.
Study Design
We measure the Medicare payment rate as a hospital's total acute inpatient Medicare Part A payment, divided by the standard IPPS payment for its geographic area. We assess variation using several measures, both within local markets and nationally. We perform a factor decomposition to identify the share of variation attributable to specific adjustments. We also describe the characteristics of hospitals receiving different payment rates and evaluate changes in the magnitude of the main adjustments over time.
Data Collection/Extraction Methods
Data downloaded from the Centers for Medicare and Medicaid Services, the National Bureau of Economic Research, and the Dartmouth Atlas.
Principal Findings
In 2013, Medicare paid for acute inpatient discharges at a rate 31 percent above the IPPS base. For the top 10 percent of discharges, the mean rate was double the IPPS base. Variations were driven by adjustments for medical education and care to low‐income populations. The magnitude of variation has increased over time.
Conclusions
Adjustments are a large and growing share of Medicare hospital payments, and they create significant variation in payment rates.
Abstract Objectives In 2003, Japan introduced the prospective payment system (PPS) with diagnosis-related groups (DRG) rearranged grouping system called the diagnostic procedure combination/per-diem ...payment system (DPC/PDPS). Even after eight years, little is known about the effects of DPC/PDPS. The purpose of this study was to examine the effects of DPC/PDPS on resource usage and healthcare quality. Methods Using 2001–2009 (fiscal year) administrative data of acute myocardial infarction patients, four indices, including inpatient total accumulated medical charges, length of stay (LOS), mortality rate, and readmission rate, were compared between patients reimbursed by DPC/PDPS or by fee-for-service. Results DPC/PDPS significantly reduced total accumulated medical charges by $1061 (95% confidence interval CI, −2007, −116) and LOS by 2.29 days (95% CI, −3.71, −0.88) after risk adjustment. However, mortality rate (Odds ratio OR, 0.94; 95% CI, 0.73, 1.21) was unchanged. Furthermore, DPC/PDPS increased the readmission rate (OR, 1.37; 95% CI, 1.03, 1.82). Conclusions This study showed that DPC/PDPS was associated with reduced resource usage, but not improved healthcare quality, as with DRG/PPSs in other countries. To achieve successful healthcare reform, further discussion on additional motives will be required.
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