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Part 1. Physician payment

In traditional fee-for-service Medicare, physicians are paid on a per-service basis.  Payments are based on the “relative value units” of a particular service, reflecting the relative costliness of inputs. 

How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists?

Describe the principal-agent problem in fee-for-service payment of physicians and physician-induced demand (also called supplier-induced demand). Describe the findings of Baker (2010). What does this imply about physician-induced demand?

Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement. How does this change the incentives for the volume of services provided by physicians? Are the findings of Song, et al. (2014) consistent with your theoretical prediction?

What is a potential unintended consequence of “global budgets” such as that in the Alternative Quality Contract? How does the AQC attempt to mitigate this incentive, and was the attempt successful?

Scenario 1: Alternative payment models include both patient-centered medical homes (low financial risk, essentially fee-for-service, but physicians receive a “case management” fee) and accountable care organizations (physicians are at financial risk for spending above a target).

Scenario 2: Alternative payment models just include accountable care organizations (Hussey et al. 2017). 

How might physician and hospital spending differ between Scenarios 1 and 2? Please explain your answer based on the lecture and course readings.

  1. Some policymakers have advocated for malpractice reform as a means for reducing health care spending.
  • Drawing from the readings and the lecture, describe conceptually why malpractice and health care utilization may be related.
  • Do you think malpractice reform would reduce unnecessary health care use? Cite empirical evidence for and against.

CMS’ Bundled Payments for Care Improvement Initiative (BPCI) defines episodes of care (initiated by hospital stays) and spending targets for traditional Medicare enrollees. Providers continue to be paid on a fee-for-service basis. If total spending exceeds the target, then the “contracting entity” pays Medicare the difference. If total spending is below the target, then Medicare pays the contracting entity the difference.

Condition 1: analysts believe patients admitted to the hospital for Condition 1 are often unnecessarily discharged to an institutional post-acute care provider (for example, a skilled nursing facility or inpatient rehabilitation facility) where a home health provider could provide care more efficiently and effectively.

Condition 2: analysts believe that institutional post-acute care (such as SNF care) is very often clinically necessary after a hospital discharge for Condition 2. However, there is a high incidence of unnecessary hospital readmissions from post-acute care providers for patients with Condition

Separately describe which BPCI model is the best match for Condition 1 and 2. In each case, justify your decision by describing which contracting entity is in a better position to improve the efficiency and effectiveness of care, and explicitly describe the change in payment incentives from traditional Medicare to bundled payment for the contracting entity.

Explain an unintended consequence of bundled payment and describe a feature of BPCI that may offset this incentive.

List and describe at least one advantage and one disadvantage to having a longer duration episode covered by the bundled payment.

Part 1. Physician payment

How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists?

The mix of services provided by primary care physicians has a significant effect on their reimbursement. The main reason behind it is that the method adopted by the organization for reimbursement to physicians is fee-for-service. In this system, the payment is made as per the number and type of services provided to the patient. the prices are set in a predetermined manner for each service which can be fixed or variable. In the fixed system, the payment is made to the physician on the basis of the schedule rates decided in the beginning of the year for a agreed time period. But in case of variable system, the reimbursement is done to the physicians related to current usual and customary fee.  The reimbursement of specialist is decided on the basis vists done by them to provide health services to the patients. At the same time, the fees of specialists would be higher than the primary care physicians (Reschovsky, et al. 2012).

Describe the principal-agentproblem in fee-for-service payment of physicians and physician-induced demand(also called supplier-induced demand). Describe the findings of Baker (2010). What does this imply about physician-induced demand?

There is an occurrence of principal-agent problem in fee-for-service payment system. This problem refers to a situation in which the physicians perform such actions which results in the maximization of their profits at the expense of the interests of patients. In fee-for-service payment system, the incentives of physicians are directly linked to their actions. Besides this, the private primary care physicians induce demand by prescribing more drugs to patients for a similar illness and their profile. Along with this, physicians prescribed injections of the drugs for the purpose of gaining trust of the patients. The problem of physician induced demand is mitigated if the patients have knowledge regarding the reasons related to the occurrence of such problems. There is an occurrence of physician induced demand because physicians try to increase their profits by promoting excessive and unnecessary care provided to patients. There is a need to determine the levels of reimbursement by the adoption of administrative pricing schemes (Johnson, 2014). The findings of Baker also supports that there is an existence of occurrence of principal agent problem. For example there is an increased spending for MRI procedures by the patients as there is an occurrence of billing of MRI services by physicians (Baker, 2010).

How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists?

Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement. How does this change the incentives for the volume of services provided by physicians? Are the findings of Song, et al.(2014)consistent with your theoretical prediction?

The Alternative Quality Contract emphasizes on linking the payment of physicians to the quality goals of the organization. In this method, the payment of fees is decided on the level of quality of the services offered to the patient instead of the quantity. In contrast to this, fee-for service method results in deciding the payment of fees to physicians is based on the quantity or volume of services provided to the patients. There is no impact on the fees of physicians due to change in the volume of services rendered to the patients under Alternative Quality Contract as it takes into consideration the quality aspect whereas in fee-for-service reimbursement method, the incentives of the physicians changes as per the changes occurred in the volume of service rendered to patients (Chernew, et al., 2011). The findings of Song is consistent with the theoretical predictions as the contract has been signed between the physicians and healthcare organization to provide high quality services and payment is made on the basis of the quality of services offered to the patients (Song, et al., 2014).

What is a potential unintended consequence of “global budgets” such as that in the Alternative Quality Contract? How does the AQC attempt to mitigate this incentive, and was the attempt successful?

The potential unintended consequence of global budget is that it might be possible that the physicians might prescribe unnecessary care costs to patients in order to increase their performance incentives. The global budget is a mode of payment which is a combination of the performance incentive and fixed per patient payment. The AQC is successful in mitigating the occurrence of unintended consequence as in this method; the payments related to performance incentive are tied with the nationally accepted measures of effectiveness, quality and patient experience. This model facilitates in delivery of appropriate treatment to patients by right kind of provider in most appropriate settings. It also results in increased transparency of quality and cost associated with the service provided. It results in improving the quality and affordability of the services provided to patients. Along with this, this system also helps in providing opportunity to providers to communicate with the patients through e-mails in order to provide them high quality services to them (Blue Cross Blue Shield of Massachusetts, 2010).

Describe the principal-agent problem in fee-for-service payment of physicians and physician-induced demand?

How might physician and hospital spending differ between Scenarios 1 and 2? Please explain your answer based on the lecture and course readings.

In the first scenario, the alternative payment model include both patient centered medical homes and accountable care organizations. In the patient centered medical homes, there is an occurrence of less spending by physicians in comparison to accountable care organizations This is because, in patient centered medical homes, the incentive earned by the physician on the service provided to the patient is not shared with the staff of the hospital. Therefore, there is a presence of low financial risk whereas in accountable care organization, there is a necessity to share the earned income with the group of doctors. In Scenario 2, the alternative payment model is only accountable care organizations where there is an occurrence of the sharing of the payment received by the doctor with other doctors of the organization. In this type of model there is a presence of high financial risk as the payment is based on the quality of service rendered to the patient (Hussey et al. 2017).Some policymakers have advocated for malpractice reform as a means for reducing health care spending.

Drawing from the readings and the lecture, describe conceptuallywhy malpractice and health care utilization may be related.

There is an existence of relationship between malpractice and healthcare utilization. Healthcare malpractice refers to the actions taken by the physicians to provide substandard quality of services to patients. This might occur due to increased visits of the patients to hospitals for unnecessary checkups. People who visit physicians in a frequent manner for the utilization of high number of medications are deemed to suffer from chronic and unstable conditions (Guendalina, 2016).

Do you think malpractice reform would reduce unnecessary health care use? Cite empirical evidence for and against.

Yes, malpractice reform would reduce unnecessary healthcare use as it results in increased suffering of the patients due to errors made by the doctors or physicians. For example, a patient has visited a physician for operating its knee and due to hurry, doctor has left scissors in the body of the patient unintentionally then the patient suffers from chronic pain and results in operation of the knee at the second time for extracting the scissors from the knee. Another example is that the physician has prescribed a medicine of pain to a patient but the patient has not get relief from the medicine then it might be possible that the patient does not visit the physician again (Guendalina, 2016).

Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement.

Separately describe which BPCI model is the best match for Condition 1 and 2. In each case, justify your decision by describing which contracting entity is in a better position to improve the efficiency and effectiveness of care, and explicitly describe the change in payment incentives from traditional Medicare to bundled payment for the contracting entity.

The Model 3 of the BPCI model is best suited for Condition 1 as the initiation of episode is done by the use of SNF after the discharge from the hospitals. Besides this, Model 2 is suited for condition 2 as the episode initiates from the stay in hospitals. There is no change in the payment incentives from traditional Medicare to bundled payment for the contracting entity in both the models and conditions. In the model 3, the SNF is in a better position to improve the efficiency and effectiveness of care. Besides this, in model 2, hospitals are in a better position to improve the efficiency and effectiveness of care (MedPac, 2013).

Explain an unintended consequence of bundled payment and describe a feature of BPCI that may offset this incentive.

The unintended consequence of bundle payments is that it results in the production of substantial Medicare savings. The feature of BPCI is that it reduces the historic cost of time defined episodes which may result in the generation of cost savings by providing discounts. This program facilitates in reducing the waste occurred in the post acute care setting. Besides this, there is also a need to maintain the level of income in order to cover fixed costs. For the purpose of increasing the volume of episodes, there is an occurrence of changes in the behaviors of the physician that results in mitigating this incentive (MedPac, 2013).

List and describe at least one advantage and one disadvantage to having a longer duration episode covered by the bundled payment.

The advantage of longer duration episodes covered through bundled payment is that it provides several services such inpatient stay, physician services, post acute care, other Part B services by providing discount of 3% to patients. The disadvantage of longer duration episodes is that there is an occurrence of unnecessary discharges of the patients from the hospitals which results in increased readmissions to the hospital which has a negative impact on the fees of physicians (MedPac, 2013).

The goal of bundled payment is to produce a set of incentives to deliver care that maximizes both quality and efficiency. In the week 5 lecture, we considered alternative theories for the existence and behavior of nonprofit hospitals. Under which theory would you expect the largest change in treatment patterns when payment switches from fee-for-service to bundled payment? Provide support for your answer.

There is an existence of largest change in the treatment patterns in non-profit organization in comparison to profit organization. The theory given by Horwitz categorizes different services provided by the hospitals in not for profit and profitable services. Open heart surgery is categorized into profitable service whereas psychiatric emergency care is categorized as not for profit services. It is also found out that not for profit hospitals provide more number of profitable services in comparison to unprofitable services to patients. There is an increased number of home health services provided by the for profit hospitals after 1990s. Under ACA, there is an establishment of new IRS regulations such as written financial assistance and emergency care policies, limited charges are charged from individuals who are eligible for financial assistance. Besides this, there is an organization of periodic community health needs assessments (Cutler, 2003). 

References

Baker, L.C. 2010. Acquisition of MRI equipment by doctors drives up imaging use and spending. Health Affairs 29(12), pp.2252-2259.

Blue Cross Blue Shield of Massachusetts. 2010. Blue Cross Blue Shield of Massachusetts The Alternative QUALITY Contract. [Online]. Available at: https://www.bluecrossma.com/visitor/pdf/alternative-quality-contract.pdf [Accessed on: 22 June 2017].

Chernew, M.E., et al. 2011. Private-Payer Innovation In Massachusetts: The ‘Alternative Quality Contract’. Health Affairs 30(1), pp. 51-61.

Cutler, A.C. 2003. Private Power and Global Authority: Transnational Merchant Law in the Global Political Economy. Cambridge University Press.

Guendalina, G. 2016. Promoting Patient Engagement and Participation for Effective Healthcare Reform. IGI Global.

Hussey, P.S., Liu, L. and White, C. 2017.  The Medicare Access and CHIP Reauthorization Act: Effects on Medicare Payment Policy and Spending. Health Affairs 36(4), pp.697-705.

Johnson, E.M. 2014. Physician induced demand. [Online]. Available at: https://www.mit.edu/~erinmj/files/PID.pdf [Accessed on: 21 June 2017].

MedPac. 2013. Approaches to bundling payment for post-acute care. In Report to the Congress: Medicare and the Health Care Delivery System. Washington D.C.: Medicare Payment Advisory Commission.

Song, Z., et al. 2014. Changes in Health Care Spending and Quality 4 Years into Global Payment. NEJM 31(8), pp. 1885-1894.

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