Important new research published in the Journal of the American Medical Association on Tuesday showed that a promising experiment aimed at reducing health care costs through changes to the payment system delivered underwhelming early results. But there’s more to the story, and the research is exactly what should be happening as we transition away from fee-for-service payments.
First, some context. As noted previously, improving value in health care is not primarily about loading more responsibility on the consumer. Instead, most of the gains must come from changing provider behavior, since the bulk of what’s delivered in health care is what the doctor orders. And part of that, in turn, requires paying doctors and hospitals differently, since paying for volume rather than value produces more care instead of better care.
The two main ideas for alternative payment models are bundled payments (which pay a fixed amount per episode of care) and Accountable Care Organizations (or ACOs, which pay a fixed amount per person per year). The vast majority of these new models remains voluntary, in the sense that a hospital or physician can choose to participate. The exception is a bundled payment for hip and knee surgery, in which the government required participation by hospitals and paid a fixed amount for all the costs associated with the surgery and any follow-up care in the subsequent 90 days.
A fascinating feature of this mandatory hip and knee bundled payment is that the government randomized the local areas in which the new model was applied. That randomization, in turn, provides the basis for the new research.
Amy Finkelstein of MIT, Yunan Ji of Harvard, Neale Mahoney of the University of Chicago, Jonathan Skinner of Dartmouth College studied the differences between the hospitals included in the new payment model and those randomly excluded from it.
A copy of their paper is available here.
The researchers found some encouraging results, including that the hospitals participating in the new model discharged a significantly smaller share of their hip and knee surgery patients to skilled nursing facilities and other institutional post-acute settings. Previous research has shown substantial variation in the cost and quality of these facilities, suggesting that many may not provide sufficient benefit for the dollars spent on them, and a key objective of the bundled payment model is to reduce the use of inefficient post-acute care. Many hospitals respond to the new payment incentives as expected, by trying to avoid discharges to places like skilled nursing facilities.
The more surprising, and disappointing, results involved the total cost of care. Medicare spending per episode was a bit over $22,400 in the participating hospitals. At those randomly not participating, spending was slightly higher, at $22,900 — but the roughly $500 difference was not statistically significant. And there were no significant differences in observed quality measures, either. Since the whole point of these new models is to improve quality and reduce spending, achieving neither is disheartening.