Healthcare Organization and Payment

• Study notes on hospital and physician organization and payment.

Plan Overview

• The plan addresses demand for healthcare, national healthcare systems, physician/hospital payments, and purchasing services related to universal health coverage.
• Aims to control costs and maintain quality.

National Health-care Systems

• Systems are classified by history/political ideology, with models like Beveridge, Bismark, and the American system.
• Systems are also classified by market or government intervention, like Entrepreneurial, Welfare, Comprehensive and Socialist systems.
• Principal components include resources, organization, management, economic support, and service delivery.

Health-care System Ideologies

• Beveridge model: single-payer insurance and free care provided by the government, as seen in the UK, Canada, Sweden, and Australia.
• Bismark model: universal insurance with private insurers, as seen in Germany, Japan, France and Switzerland.
• American Model: Private insurance, can lead to uninsured individuals.

Health-care Systems: Market Intervention Models

• Entrepreneurial model: abundant resources, division between federal and provincial organization, high specialization, exemplified by the US and Australia
• Welfare model: abundant resources, strong central government, hospitals are government run, exemplified by Western Europe, Canada and Japan.
• Comprehensive model: GPs are the first pillar, hospitals are in regional groups, local public health uses nurses, teaching hospitals are present. The system is entirely supported by tax-revenue, and most facilities are government run, exemplified by the UK, Greece and Spain.

National Income Accounting Framework

• Expenditure, income and revenue are equivalent.
• Expenditure = Price x Quantity for healthcare goods and services.
• Income = Wage rate per unit x Quantity of inputs, for healthcare workers.
• Revenue sources include taxes, social insurance, user charges, and insurance premiums.
• PxQ = WxZ = T + SI + UC + PI

National Income Accounting - Retrospective Use

• To analyze an increase in one part by tracing it to others.
• For example: Increased expenditure indicates a rise in either price or quantity.
• If wages increase, and inputs are constant, then price x quantity and, taxes + social insurance + user charges + insurance premiums must increase.

National Income Accounting - Prospective Use

• Used used to examine likely consequences of payment reform.
• For example: Reducing hospital expenditure by limiting beds will decrease quantity and therefore decrease price x quantity.
• To address the shortage of physicians, increase the mix of inputs (Z) such that the wages increases.

Physician and Hospital Payment Systems

• Retrospective Payment System:
  • The payer reimburses all costs incurred by the provider.
  • The provider has no risk of cost overruns.
  • There is no incentive to control costs.
  • An example is fee-for-service payment.
• Prospective Payment System:
  • Fixed budget for patient care.
  • Payment on a per-case basis rather than per-item or per-service.
  • Complete cost-sharing by suppliers.
  • Strong incentives for efficient operations.
  • Examples are capitation and Diagnosis Related Groups (DRG).

Payment Methods

• Methods of payment include salary, fee for service (FFS), pay-for-performance (P4P), blended remuneration, capitation, and diagnosis related groups (DRG).

Salary Payment

• Mechanism: Payment per time period, is not linked to the number of patients or services.
• Efficiency: Strong incentive to reduce the quantity of services per patient.
• Quality: Maintains quality and working hours for doctors through contracts.
• Equity: Used in recruiting and retaining physicians in underserved areas.
• Risk: Providers get stable income, while payers bear cost overrun risk.
• Not achieved as providers may reject high cost patients.
• Evidence shows smaller patient lists, shorter consultations, less time administration.
• Risk of lower productivity (shirking) and under-providing care.

Fee for Service (FFS) Payment:

• Mechanism: Retrospective payment for each item of care delivered where Income equals Cost x Number of Procedures.
• Efficiency: Produces a strong incentive to increase the quantity of services.
• Patient retention and patient satisfaction matter.
• Equality: provider treats both high and low cost patients.
• Risk:
  • Providers do not have risks and are paid for their services
  • Patients are at risk for deductibles and coinsurance
  • Insurance companies are at risk for high costs of care
• Has evidence of supplier-induced demand and higher patient satisfaction.
• Has potential use if there is a high need for patient satisfaction, the need to increase quantity, or to reduce the risk of cherry-picking patients.
• The Increase in quantity can be managed through patient-wait lists, rationing, user-charges.

Reimbursement Strategies Focus

• Reimbursement payments depend on quantity and intensity.
• Too much care (if generous payments) or too little care (if poor payment)
• Too much done includes prescription drugs with cheaper alternatives and surgeries with low clinical benefit.
• Too little done includes monitoring and counselling of patients, and the use of IT.

Reform Strategies

• Command and control features: utilization review, ex-post monitoring, paying less for high-tech care.
• Reduced cost sharing lowers the costs patients face when seeing the doctor.
• Generous reimbursement is moved up on the intensity axis relative to traditional reimbursement

Pay for Performance (P4P)

• Achieves efficiency and improve quality.
• Quality is remunerated and rewarded.
• Performance is measured through processes, health-outcomes, and patient experience.
• Unintended consequences such as reduced quality in under-served areas.
• In the UK, the Quality and Outcomes Framework (QOF) was found in all family practices in 2004.
• Up to 25% of family practitioners’ income was based on 100 publicly reported quality indicators: management of chronic disease, organisation of care, and patient experience.
• GBP5.86 billion (US$9 billion) was invested in incentive payments during the first 7 years.
• Improvements were driven by record keeping and manipulation of performance statistics.
• Reduces risk factors for acute events.

Capitation Payment

• Payment per patient over a time period, with doctors and hospitals paid a flat salary or based on "covered lives.”
• There is an incentive to reduce unneeded services, incentivizing providers to prevent care utilization.
• Offers choice, promotes innovation, is administratively easy and providers can decide the mix of services for patients
• Disadvantages: not achieved if providers reject high cost patients, and risk of discontinuity of care, lower quality care, cream-skimming.
• Leads to Evidence of referral out and increase in emergency room visits.

Blended Remuneration

• Balancing Incentives: Combines incentives to offset adverse effects like over-prescription in FFS and shirking in salary-based systems
• Blend depends on relative adverse effects of component system: If demand inducement is high, then increase salary component. If shirking and withholding is high, then increase FFS.
• Lower density areas benefit from physician availability; FFS ensures productivity
• Combines capitation for defined services with FFS for other services.
• Capitation promotes health promotion/disease prevention, and FFS maintains productivity/equality.

Diagnosis Related Groups (DRG)

• Flat per-discharge payment that varies on diagnoses/severity at admission.
• Hospitals paid a lump sum based on diagnosis, has a clear admission/discharge.
• There is Pay for average mix of patients that may include payment for outliers.
• Payment to hospitals is also adjusted based on hospital type.
• Provides strong incentives to reduce costs, overall savings from improved efficiency, and improvements to operational efficiencies.
• DRG Wont work with FFS or Capitation payments.
• Disadvantages: Encourages hospitals to chose low-cost patients.
• Increases risk of over-serving patients by increasing number of admitting patients.
• Doctors may up-code patients and risk of pre-mature discharge.
• Requires data-intensive average cost determination and IT system for coding/classification.

Healthcare Financing

• Three main functions of Health Financing include:
  • Collecting Revenues using taxes, insurance premiums, out-of-pocket payments, donations etc
  • Pooling Funds to share financial risk.
  • Purchasing Health Services by allocating funds to institutional or individual providers.

Universal Health Coverage

• "All people have access to health services they need, when they need them, of sufficient quality to be effective, without suffering financial hardship."
• 100 million people are pushed into poverty because of out-of-pocket spending on health-care.
• Currently half of the people in the world do not receive the health services they need.
• Includes health promotion to palliative care.
• Aims for timely care where there is a Lack of primary care, and maternity services with properly trained health-care workforce, equipment, drugs.