Current Types of Payments in the U.S. Healthcare System Lori Weyuker, A.S.A. 24 Junio 2005, San Jose, Costa Rica

Agenda Introduction Discussion of Hospital Payment Overview of Risk Adjustment and Risk Models Applications Conclusion

Methods of Hospital Payment: United States

Methods of Hospital Payment: United States Fee-for-Service: DRG Per Diem Global Fee Capitation Risk-Adjusted Capitation

Methods of Hospital Payment: United States Fee-for-Service Hospital Charges Based on Inpatient Services (e.g. DRG) Used in United States Medicare FFS This is ~80% of Medicare hospitalizations Advantages and Disadvantages Advantages Method well understood in all health care systems Idea of little risk for hospital Disadvantages Requires complex administration for hospitals Encourages hospitals to use more services Results in spiraling increases in cost of providing inpatient care

Methods of Hospital Payment: United States Per Diem Hospital Charges Flat Rate Per Day in Facility Used in Germany Used in United States Commercial health insurance < age 65 Advantages and Disadvantages Advantages Method well understood in many health care systems Creates incentives for financial efficiency in hospital Disadvantages Some financial risk transferred to hospital

Methods of Hospital Payment: United States Global Fee Hospital Charges Flat Rate Per Inpatient Episode, Given a Specific Disease Examples: normal delivery global fee, heart by-pass global fee Used in commercial health insurance < age 65 in U.S. Advantages and Disadvantages Advantages Method well understood in many health care systems Creates incentive for financial efficiency in hospital Disadvantages Some financial risk transferred to hospital

Methods of Hospital Payment: United States Capitation Hospital Charges Capitation Rate Per Member Per Month Used in many HMOs in U.S. HMO “Health Maintenance Organization” Health insurance system which uses capitation in place of billing for each service

Methods of Hospital Payment: United States Capitation Payment on a per-capita basis Usually paid per insured per month to hospital Paid to hospital for each insured person in the relevant geographic population Usually covers entire cost of hospitalization: laboratory tests, radiology, inpatient drugs Can also cover cost of doctor in hospital

Methods of Hospital Payment: United States Capitation Advantages and Disadvantages Advantages Can create incentive for financial efficiency in hospital Can help to control budget cost Disadvantages Method not as well understood Some financial risk can be transferred to hospital Small hospitals with specific demographics may incur unusually high risk

Methods of Hospital Payment: United States Risk-Adjusted Capitation Hospital Charges Capitation Rate Per Member Per Month Retrospective Risk Adjustment to Hospital, Based on Actual Disease Burden of Given Hospital Used in Kaiser Permanente HMO in U.S. Largest Non-Profit HMO in United States

Methods of Hospital Payment: United States Kaiser Permanente HMO 9.000.000 Insured 600.000 are > age 65 (Medicare) 300.000 are indigent Remainder are commercial < age 65 Fully-integrated health care system Doctors, nurses, dentists and other health care workers are employees Paid a salary, independent of number and type of services 90.000 health care workers are employees Executives, analysts and administrators are employees 10.000 employees Exists in 8 States in U.S. Hospitals (non-profit) owned and operated by Kaiser

Methods of Hospital Payment: United States Capitation Advantages and Disadvantages Advantages Can create incentive for financial efficiency in hospital Can help to control budget cost Help to prevent cream-skimming Makes hospital indifferent to treating high-risk persons Disadvantages Method not as well understood Some financial risk can be transferred to hospital Small hospitals with specific demographics may incur unusually high risk

Methods of Hospital Payment: United States FFS plus Capitated Hospital Payment Some hospitals combine methods FFS to pay doctor cost Capitation to pay hospital administration cost Including laboratory, radiology, in-hospital drugs Used in United States commercial health insurance < age 65

Methods of Hospital Payment: United States FFS plus Capitated Hospital Payment Advantages Can create incentive for financial efficiency in hospital Can help to control budget cost Doctors maintain more autonomy in health care practice modality Disadvantages Some financial risk can be transferred to hospital Small hospitals with specific demographics not as much at risk as in fully capitated case

Risk Models and Risk Adjustment

Risk What is Risk Risk Assessment Risk Adjustment Expected health care consumption at some time in future Risk Assessment Mathematical process of calculating numeric value of health risk Risk Adjustment Policy decision How to use risk assessment information to move money for health care

Examples of Risk Assessment Methods By Age and Sex Most common method By Survey Data Health status questionnaires By Other Statistics Income Geography By Disease Burden Use of electronic information on diseases present in population Use of electronic prescription drug information Use of electronic laboratory and radiology results

Overview of Risk Models Johns Hopkins University ( ACGs) Boston University (DCGs, RxGroups) Symmetry (ERGs) CSC-3M Model (CRGs) Risk Model of The Netherlands Others

Risk Model Applications High cost patient identification Hospital payment Doctor profiling

Risk Model Applications

Conclusion Insufficient resources for health care expected Methods exist to improve efficiency and equity within financial stability in hospital-provided health care Risk adjustment is a new proposed part of solution Makes hospital indifferent to treating high-risk persons Health care data quality and risk models are improving dramatically Better quality electronic data These advances result in more equity, efficiency and stability in health care systems