The Users' Guide to the Health Reform Galaxy

Health Reformer's Lexicon: Bundled Payments

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

The term: Bundled payments

The RAND Corporation defines bundled payments—also known as “episode-base payments”—as “a single payment for all services related to a specific treatment or condition … possibly spanning multiple providers in multiple settings. Providers would assume financial risk for the cost of services for a particular treatment or condition as well as costs associated with preventable complications.”

The Robert Wood Johnson Foundation and George Washington University’s Health Reform GPS project adds: “In contrast to fee-for-service payments, which can encourage a high volume of treatment, ‘bundling’ is thought to encourage more cost-effective care.”

(Bundling payments first requires categorizing different types of medical cases. These categories are known as diagnosis-related groups, or DRGs, which Medicare uses to bundle reimbursements to hospitals for inpatient care.)

Why it matters: A root cause of many of the U.S. health care system’s most profound problems—including soaring costs and uneven quality—is the fee-for-service payment system, which encourages overuse of health care services and fails to reward value. Among the alternative options, bundled payment schemes are attractive because they give hospitals and physicians incentives to coordinate care and to provide it more efficiently. Tied to evidence-based medical practice, bundling also promises to increase the value of our health care system—producing better outcomes for patients—in a fair and equitable way.

Roots: Physicians at the Texas Heart Institute introduced bundled payments in 1984 for cardiovascular surgical procedures. A 1987 study found that the Health Care Finance Administration could decrease its costs by more than $192 million (13 percent) under Texas’ payment plan. Since then, as U.S. health care expenditures have ballooned, health reformers have continued to advance the idea of bundling as a way to reform the fee-for-service payment system. The Balanced Budget Act of 1997 established new payment systems for most types of post–acute care services; independent initiatives such as PROMETHEUS Payment have worked on the practical design and implementation of evidence-informed case rates; and President Obama championed bundling in the recent health care reform debate.

Where the term appears: The final health reform bill calls for the creation of a national Medicare pilot program by the beginning of 2013, which will develop and evaluate bundled payment systems for acute inpatient hospital services, physician services, outpatient hospital services and post–acute care services for episodes of care that begin three days prior to hospitalizations and last an additional 30 days following discharge.
 
Under the new law, the government must also set up Medicaid pilot projects by 2012 that will use bundled payments to pay for episodes of care that include hospitalizations.

The Centers for Medicare & Medicaid Services is already experimenting with bundled payments through its Acute Care Episode demonstration, with sites in Texas, Oklahoma, Colorado and New Mexico.

And recently, several major health care providers in California announced plans to use bundled payments to pay for hip and knee replacements beginning in August. The lump-sum fee will cover a full range of medical treatments from surgery to 90 days of recovery.
 
Previous Lexicon entries include:
- Flexible Spending Accounts
- Value-Based Purchasing
- High-Risk Pools

Health Reformer's Lexicon: High-Risk Pools

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

The term: High-risk pools

High-risk pools are private, self-funded health insurance plans that serve high-risk individuals with costly pre-existing medical conditions such as cancer or HIV/AIDS.

Why It Matters: As the National Association of Health Underwriters explains, most Americans get their health insurance in group-purchasing arrangements—typically through their employers or the employers of family members—but some people do not have access to this type of coverage and need to buy their own insurance independently.

Unlike in the group health insurance market, however, insurers in most states traditionally have been allowed to deny coverage to individuals with serious pre-existing conditions. That’s because when you buy insurance individually, you’re essentially a “group of one.” The health insurance company has to determine how likely it is to take in more premium dollars from you than it pays back in benefits—and if it appears that the odds are you will get sick, then it is in the insurance company’s financial interest to avoid taking on the risk you represent.

(There have also been widely commented-upon incidents in which insurance companies have found reasons to rescind people’s coverage after they get sick.)

For this reason, many states offer some form of risk pool that individuals can buy into.

Roots: High-risk pools were first implemented in Minnesota and Connecticut in 1976, according to the Kaiser Foundation, and now operate in 34 states, providing insurance to nearly 200,000 people.

Where the Term Appears: The recently passed health reform law established a national high-risk pool program to insure individuals with pre-existing conditions from now until 2014, when the law’s broader provisions for expanding access to coverage begin to kick in. Getting this temporary program up and running is one of the first things that HHS Secretary Kathleen Sebelius has been tackling. She recently sent a letter to governors and state insurance commissioners asking whether they are interested in creating high-risk pools. Some states have responded that they need more time to decide.
 
Previous Lexicon entries include:
- Individual Mandate
- Uncompensated Care
- Value-Based Purchasing

Health Reformer's Lexicon: Value-Based Purchasing … and the latest from Health Wonk Review and Grand Rounds

The Health Reformer's Lexicon is a regular feature that examines key words, terms and phrases in health reform and explores their meaning and orbit.

Today’s term: Value-based purchasing.

According to the Agency for Healthcare Research and Quality, “the term basically refers to any purchasing practices aimed at improving the value of health care services, where value is a function of both quality and cost.” AHRQ continues: “It can be helpful to think about value as the result of quality divided by cost: Value = Quality ÷ Cost. This equation shows that value increases as quality increases, holding expenditure constant.”

The term is commonly associated with specific reforms such as pay-for-performance and discrete initiatives aimed at improving outcomes for a single disease or fraction of the population. But many health care experts argue value-based purchasing must be construed more broadly if it is to be an instrument of systemic reform. For example, the Urban Institute’s Robert Berenson and New America Foundation’s Len Nichols, writing in the Health Affairs blog, offer this definition: “Value-based purchasing uses a variety of tools to try to obtain the right kind and mix of services, of desired quality, at a reasonable cost.”

Why it matters: Susan DeVore, the CEO of the Premier healthcare alliance, has put it this way: “Cutting costs while improving care is the Holy Grail of health care reform.” And in the search for that Holy Grail, many health care policy experts believe value-based purchasing will be a critical tool.

Our current health care system, structured as it is around a fee-for-service model of reimbursement, rewards doctors and hospitals for the volume of services they provide, not the value of the care they deliver for patients or populations. This causes a host of problems, not least of which is overuse of health care services.  In the long run, health care reform can only be successful if the system rewards providers for giving patients the right care at the right time in the right way.

Roots: The concept of value-based purchasing has been gaining currency since the late 1990s as health care researchers and stakeholders have been systematically examining the design, implementation and outcomes of new purchasing strategies to replace fee-for-service.

Where the term appears: The newly enacted health care reform law establishes a hospital value-based purchasing program in Medicare to pay hospitals based on their performance on certain quality measures. The new law also calls for plans to be developed to implement similar value-based purchasing programs for skilled nursing facilities, home health agencies and ambulatory surgical centers.

Previous Lexicon entries include:
- Individual Mandate
- Uncompensated Care
- Flexible Spending Accounts

Meanwhile, in other news …

In this week’s Health Wonk Review on the HealthBlawg, David Harlow mentions our recent post on the definition of uncompensated care, joking that “Titanic doesn't even begin to capture the immenseness of the galaxy” when it comes to this topic. Also, the latest edition of Grand Rounds highlights Catherine Hess’ recent post on children’s health insurance coverage.

Health Reformer's Lexicon: Flexible Spending Accounts

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

Today’s term: Flexible spending accounts (FSAs)

Sometimes called flexible spending arrangements, FSAs are employer-established benefit plans that allow employees to pay for qualifying health care expenses with pre-tax earnings.

Employees elect to set aside a portion of their incomes to pay for medical expenses not covered by insurance—such as deductibles, copayments, dental or vision expenses, or drugs. Employees can draw on the accounts using FSA debit cards, known as Flexcards.

FSAs are “use it or lose it” accounts: Any balance left in an employee’s account at the end of a coverage period—typically a calendar year—is forfeited back to the plan administrator.

Why it matters: As the IRS enumerates, FSAs offer several benefits to health care consumers:

• Contributions made by your employer can be excluded from your gross income.
• No employment or federal income taxes are deducted from the contributions.
• Withdrawals may be tax free if you pay qualified medical expenses.
• You can withdraw funds from the account to pay qualified medical expenses even if you have not yet placed the funds in the account.

But some health care policy analysts have scrutinized FSAs and concluded that they encourage excess utilization of health care, because they can be used to purchase things that may not be medically necessary, cost-effective or provide meaningful health value. Moreover, their “use it or lose it” structure may encourage wasteful spending at the end of coverage periods.

Roots: Flexible spending accounts were first authorized in the Revenue Act of 1978 under section 125 of the federal tax code. For that reason, they are sometimes called “125 plans.” (They are sometimes called “cafeteria plans,” too, because they are a means by which an employer can offer employees a choice between taxable and nontaxable benefits—not just for health care, but also for dependent care or certain other purposes.)

Where the term appears: The recently passed health care reform law limits the amount that employees and companies can contribute to FSAs to $2,500 per year starting in 2013, with annual cost-of-living adjustments in following years. (Unlike FSAs for dependent care, there was previously no federal cap on the amount that could be contributed to FSAs for health care.) Recent news reports have examined the impact of this for consumers, suggesting that people may want to plan costly elective treatments such as braces before the new limit takes effect. Coverage also has delved into the rationale for the policy change—which some portray as a way to reduce wasteful spending and others portray as a way to raise revenue to pay for other aspects of health reform.

Previous Lexicon entries include:
- Patient Centered Medical Home
- Individual Mandate
- Uncompensated Care

What just happened? Still processing.

I spent some time with the actual pages of PPACA this week (in my opinion, you can either pronounce it to sound like a town in upstate New York, or adopt a slight stutter), because I was getting the uneasy feeling that just reading those nifty summaries and implementation timelines that everyone's circulating might not be enough (this reminds me of how I try to resist opining on movies based on just reading the reviews).  I had to track down the one person at RWJF who had been brave enough to print out the entire law, plus the reconciliation amendments; then I started cautiously sifting through the table of contents to see what I could find.  It is not a task for the fainthearted.  Secretary Sebelius announced a "help desk" to guide Americans through the law but I always feel some obligation to learn on my own before I start bothering those nice people someone puts at my disposal to help me somehow muddle through.  Clearly, this is going to take some time.  But I found one thing to be oddly comforting as I wended my way through pages of text; it took me years of working at RWJF to truly understand that health results from so many different ingredients, including, but not limited to, personal health behaviors, environment, housing, insurance status, and the quality and type of care one receives.  It's impossible, once you really steep yourself in what it takes to make people healthier and get them the care they need, to believe that any one solution will do the trick for any one problem.  And so, as I was trying to dip my toe just a wee bit into the PPACA waters, I did think to myself, "Oh.  They got that."

Health Reformer's Lexicon: Uncompensated Care

The Health Reformer's Lexicon is a weekly feature that will examine key words, terms and phrases in health reform and explore their meaning and orbit.

The Term: Uncompensated care

Researchers from the Urban Institute define it as “medical care that is either freely donated by providers or results in an unpaid bill.”

The American Hospital Association defines it in more exacting detail as “the sum of a hospital’s ‘bad debt’ and the charity care it provides.” AHA elaborates:

In terms of accounting, bad debt consists of services for which hospitals anticipated but did not receive payment. Charity care, in contrast, consists of services for which hospitals neither received, nor expected to receive, payment because they had determined the patient’s inability to pay. In practice, however, hospitals have difficulty in distinguishing bad debt from charity care.

Why It Matters: In most cases, uncompensated care is provided to people without insurance. One estimate pegged the amount of uncompensated care given to uninsured people in America at more than $50 billion a year. Government underwrites more than $40 billion of it through Medicare and Medicaid Disproportionate Share Hospital (DSH) payments and other means.

Health-policy experts have argued that failing to enact reform would have led to greater levels of uncompensated care, perhaps even double the amount. Conversely, analysts have estimated that by insuring tens of millions more people, reform will dramatically decrease uncompensated care—and thus provide substantial spending offsets for federal and state governments.

Indeed, the final reform bill signed by President Obama reduces Medicare DSH payments by 75 percent and then begins adjusting them based on the percentage of the population uninsured and the amount of uncompensated care provided. Medicaid DSH payments are set to be reduced, too.

Roots: It is difficult to pinpoint precisely when the term “uncompensated care” was coined, but a January 1974 article in the American Society of Law & Medicine’s Medicolegal News hints at its origins:

When the Hospital Construction and Survey Act of 1946, more popularly known as the Hill-Burton Act, was passed by Congress, facilities receiving federal funding were required to assure that they would provide a “reasonable volume of services to persona unable to pay therefor.” The general legislative intent was that this would help provide access to medical care to a segment of the population that had hitherto been denied care or had been reluctant to seek it because of lack of financial resources…

As became increasingly apparent throughout the next two and one-half decades, many hospitals treated the statutory mandate to deliver uncompensated services as mere surplusage. If they were required to account at all for the volume of uncompensated care provided, they simply wrote off their bad debts for the year as Hill-Burton qualifying services…

Where the Term Appears: An expected drop in uncompensated care is factored into the final health reform law in the form of the aforementioned cuts to Medicare and Medicaid DSH payments. The term—and the dollar figures associated with it—also continue to appear in post-game analyses and debates about the costs, benefits and fallout of enacting reform.

Previous Lexicon entries include:
- Meaningful Use
- Patient Centered Medical Home
- Individual Mandate

Health Wonk Review: Brand New News

After a month of “March Madness” in the world of health care reform, we start off April with new legislation and a new edition of the Health Wonk Review, posted over on Healthcare Technology News. This week’s roundup includes two posts from our blog on providing support to primary-care practices for quality improvement and the work that’s far from over.