Fiscal Fitness: How States Cope

Fixing the health care payment system: Care and payment based on clinical guidelines

While health care fee-for-service and capitation payment systems have been with us for many years, they have significant well-known flaws. Thus, fee-for-service payments, in which a separate fee is paid for each service rendered, has been tied to the rapid increase in the cost of health insurance premiums, while capitation's flat fee per patient can put providers at risk by providing insufficient funds to cover the costs of providing needed services. Researchers say that in the United States both fee-for-service and capitation have failed to promote coordination among providers or high-quality outcomes for patients.

A nonprofit corporation known as Prometheus Payment has developed a new payment model based on what it calls evidence-informed case rates (ECR). The model attempts to address the problems with fee-for-service and capitation. Prometheus defines an ECR as a single, risk-adjusted, prospective or retrospective payment given to providers across inpatient and outpatient settings to care for a patient diagnosed with a specific condition. Payment amounts are based on the resources required to provide care as recommended in well-accepted clinical guidelines.

Bridges to Excellence national coordinator François de Brantes, who is a member of the Prometheus Payment core design team, tells State Health Watch the group is working at a time when there is considerable interest in payment reform along with broader health care reform.

"I think the country is going to run out of patience if there isn't a good solution for our healthcare system in sight by 2010," Mr. de Brantes says. "Stakeholders don't want full nationalization or major price controls. We have an opportunity over the next two to three years to start heavy experimentation to see if there is a free-market approach that works. I think that if we can't succeed, significant controls are inevitable."

Prometheus Payment is specifically designed to: 1) improve quality; 2) lower administrative burden; 3) enhance transparency; and 4) support a patient-centric and consumer-driven environment, all while facilitating better clinical coordination throughout health care.

The tenets of Prometheus Payment state that:

  • providers have an opportunity to negotiate meaningfully their payment amounts in accordance with the evidence-informed case rate and clinical practice guidelines;
  • no one receives a provider's payment unless the provider bargained to be paid through another party;
  • mechanisms of payment and systems of reporting are transparent and public;
  • providers have the option to configure themselves in whatever arrangements they choose;
  • the implementation of Prometheus explicitly seeks to lower administrative burden wherever possible;
  • providers measured for efficiency will have information about other providers in order to facilitate effective referral choices;
  • providers have the opportunity to speak to scorecard issues such as data findings, before they are made public.

To further promote quality care, the Prometheus ECR model calls for a portion of the payment to be withheld and redistributed based on provider performance on measures of clinical process, outcomes of care, and patient experience with care received.

Developing ECR models

Prometheus has been developing models of how the ECR payment system would work by convening five working groups that included medical professionals, health care researchers, and data modeling experts. The working groups selected 10 conditions for ECR development, looking at criteria such as prevalence, costs, treatment variation, coordination, and reimbursement. They are developing each ECR's scope by examining issues such as the standard work-up required to diagnose the condition, the services that should be covered by the ECR, and criteria for successful completion of care.

The initial conditions chosen were colon cancer, nonsmall-cell lung cancer, mitral valve regurgitation, nonischemic Stage C congestive heart failure, ST-segment elevated myocardial infarction, depression, Type 2 diabetes, knee replacement, hip replacement, and all preventive care.

Groups were charged with:

  • choosing the conditions for ECR development;
  • selecting clinical practice guidelines for those conditions;
  • determining the natural boundaries of each ECR;
  • providing a rigorous estimate of the ECR base;
  • including the total units of service and the type of provider responsible for delivering those services;
  • establishing a reasonable set of performance measures that should be used to evaluate the clinical performance of providers delivering the services included in the ECR;
  • participating in and supervising the data modeling of the ECR to determine the extent to which results were valid;
  • creating estimates for the warranted variation of services that should be added to the base.

Selection criteria for the 10 initial conditions chosen for ECR development included conditions with high prevalence or high cost per event, situations in which there is wide variation in treating the condition, treatment that requires coordination among multiple providers, treatment that requires services that are not currently reimbursed, the condition has clear boundaries, and clinical practice guidelines exist for the condition.

Mr. de Brantes says the knee transplant ECR has been completed, work is well under way on the diabetes ECR, and work is getting started on the ECR for all preventive care.

The goal of ECRs is to limit both under- and overuse, eliminate unwarranted variation, reduce risk selection problems that occur when providers receive the same payment to treat different types of patients, promote clinical integration between providers across disparate settings, and deliver recommended, high-quality care.

Pilot sites to be chosen

Later this year, Prometheus will move the project forward by selecting up to four pilot sites and working with local stakeholders to prepare each site for implementation. Candidates included Brockton, MA; Chicago; Memphis, TN; Philadelphia; and San Francisco. Prometheus also expects to develop an additional 50-60 ECRs during the next three years to increase the scope of the pilots and cover an increasing portion of the total care delivered in any community.

To help prepare for the pilots, which are scheduled to open Jan. 1, 2008, Prometheus has been working with additional partners on the infrastructure that will be needed to help plans and providers work through the payment model.

"This is not an easy model for plans and providers to implement because their current systems are based primarily on the fee-for-service system and they are not geared to track what needs to be tracked for an ECR," Mr. de Brantes says. He says Prometheus will not be able to provide the infrastructure free to plans, but will try to keep the cost as low as possible.

Prometheus says that while work to date has shown it is possible to create a working set of ECRs, it remains to be seen whether the product can successfully achieve its ends—a limitation on physician-induced demand, a reduction in risk-selection problems, promotion of clinical integration, and delivery of recommended, high-quality care.

According to Mr. de Brantes, the concept has drawn interest in two different areas. First, there are some communities that already have been very innovative in delivering health care and are interested in trying to move toward an integrated payment system. And second, some larger delivery systems have expressed an interest in pricing care under a global rate structure. That came about partly, he says, because a Commonwealth Fund report on the Prometheus project came out at about the same time as media attention was directed to an effort by Geisinger Health System in Pennsylvania to standardize care for elective heart bypass surgery and charge a flat fee that includes all necessary follow-up care for 90 days after surgery.

Geisinger's bypass experience

In reassessing how they perform bypass surgery, Geisinger doctors identified 40 essential steps. They then put procedures in place to ensure the steps are always followed no matter which surgeon is involved and which of the system's three hospitals is involved.

When the effort, known as ProvenCare, began in February 2006, Geisinger was performing all 40 bypass surgery steps only 59% of the time. For the last seven months, the system says, its teams have managed to have a perfect record in following all recommended steps for surgery and follow-up care. The system now is looking at developing similar approaches for other kinds of care, like hip replacements, where there is much less medical agreement on what constitutes best practices.

At the same time, the system is looking into whether purchasers would be interested in this type of approach—the same question Prometheus is asking. Heart surgery and follow-up care at Geisinger runs about $30,000. Under the experiment, the hospital charges a flat fee for the surgery plus half the amount it has calculated as the historical cost of related care for the next 90 days. Instead of billing for any additional hospital stays, which typically cost $12,000-$15,000, Geisinger absorbs that extra cost.

When the system presented results of the first year of its experiment at an American Surgical Association meeting earlier this year, it said patients have been less likely to return to intensive care, have spent fewer days in the hospital, and are more likely to return to their own homes instead of going to a nursing home.

Elsewhere in the U.S. health care system, missing an antibiotic or giving poor instructions when a patient is released from the hospital results in a perverse reward—the chance to bill the patient again if more treatment is necessary. As a result, doctors and hospitals have little incentive to ensure they consistently provide the treatments that medical research has shown lead to the best results.

In a report on the Geisinger experiment, the New York Times noted that many modern industries worldwide, including the manufacture of cars and computer chips, understand the importance of improving each step in the production process as a way of holding down costs and improving quality. The newspaper quoted Pacific Business Group on Health medical director Arnold Milstein, MD, MPH, as saying that hospitals have been slow to focus their attention on standardizing the way they deliver care. Geisinger, he said, "is one of the few systems in the country that is just beginning to understand the lessons of global manufacturing."

'Learning network' to open soon

Mr. de Brantes says several other large integrated systems have contacted Prometheus expressing interest in working together on how to price care under a global case rate structure. He says Prometheus is interested in putting together a health system "learning network" within 60 days to facilitate the exchange of information and ideas.

Asked what it will take to make ECR a reality, Mr. de Brantes says the single biggest obstacle will be the fact that the entire U.S. health care system is based on volume rather than results. Billing is based on units of service, he says. That is the single biggest challenge and it will be easiest to overcome through integrated delivery networks.

Ultimately, he says, the key to success will be to help the everyday hospital that is not integrated with a large medical group and the individual physician practice to start thinking and behaving differently. "They need to understand that they have to behave as a team," he tells State Health Watch. "A new payment mechanism will force them to think as though they are integrated, even though they aren't. There are many examples of this working in other sectors of the economy."

More information is available on-line at Download the Prometheus White Paper at Contact Mr. de Brantes at