Leadership Insight

The Episode of Care (Part 2): Achievement vs. Activity Medicine

Follow the financial flow, to be in the care model know

Let’s start by looking at the dynamics of fee-for-service. In much of today’s healthcare market, primary care physicians make money when they physically see a patient, evaluate them, do things to them, or prescribe some sort of clinical activity. These activities are captured in a series of codes that are maintained by the American Medical Association. Depending on what you do, and how you code, you can make more or less money. It doesn’t take long for physicians to understand that, “Hey – I order this, or do that, or spend this amount of time during the visit then I can increase my income.” While 99% of physicians have the highest ethics and the best intentions, they are also smart, rational economic actors who will respond to financial incentives.

You can see the game that quickly emerges – as the physicians developed more sophisticated ways to bill, the payers require better and better documentation, the insurance companies create more and more rules, and the cat and mouse games (of coding, billing, rejecting claims, upcoding, asking for yet more proof, etc) creates 33% (or $1.1 trillion annually) administrative waste in healthcare. This is the real definition of “hamster wheel medicine” and is also ground zero for the physician burnout problem in the US.

If you are wondering how this feels as a provider, consider the following:

Activity based medicine: Do these things and get paid. Check this list and get paid. Track this measure down and get paid. Do this behavior and get a pellet. Fetch this bone and get a pellet. Good boy!

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So Let’s Change the Flow

An alternative to the activity payment approach is what I like to call the “achievement” pay model. From a physician view, this model feels like this:

Achievement based medicine: You have a whole person you are responsible to care for.  It is in your patients’ and your interest to take a holistic view, to create an annual health strategy, and delivery a set of services that will add value both now and in the future. Go forth and [be creative in order to] prosper!

Achievement Medicine is a form of capitation (defined as providers taking risk based on a “per head” basis for a set fee), but a “micro” capitation variant that is constrained to a specific set of clinical activities, specific conditions with clear next steps, and other forms of care that can be reasonably circumscribed or defined by the value they would create. I was previously inspired – nearly a decade ago – by the concept of bundling a set of services (Tony Miller / Carol.com) together in what I described as Micro-capitation (see several posts on this topic hereherehere, and here). What I have always liked about this concept is the notion of taking a fixed fee or defined budget approach, but modifying it to include reasonable risk transfer and incentives to care providers to be incredibly innovative while ensuring all the actors remain aligned. While there have been many notable variations on this theme, the one that I think should be (re)introduced for serious consideration in primary care is the Episode of Care.

At the time I was writing much of the above, I was pouring through articles, papers, and books describing methods to get to payment model nirvana. The most technical, authoritative, and crisp writing on the subject of Episodes of Care was from Douglas Emery whose book Customer-Directed Healthcare Reform with Episode Pricing is heavily paraphrased below to provide a succinct summary.

Defining the Episode of Care

An Episode of Care is defined as “the complete, self contained sequence of interactions between a patient and providers of healthcare services in pursuit of a defined clinical objective over a specified period of time.” This model employs “common sense in assembling all of the required services for a diagnosed medical condition into a unified bundle”. The oft cited example is the simplicity of a single sticker price to purchase a car (the consumer pays one price for the entire car and drives away with all the systems working together) or the even simpler example of buying a burger (you don’t pay for cheese, tomato, lettuce, and condiments separately). An Episode of Care is an effective means to “delineate, allocate, and manage risk” and is a great “framework for understanding and managing healthcare production and consumption”.

In sum, an episode of care can be viewed from three perspectives: the patients, the provider, and the payer and follows an orderly sequence beginning with diagnosis, proceeding through therapy, and concluding after a period of follow-up. It also consists of six interrelated components: 1) a subject of care, 2) an underlying condition that requires care, 3) clear care objectives, 4) identifiable and measurable care interventions, 5) defined duration of care, and 6) mechanism to organize the interrelated activities deployed in achieving the care objectives. If done well, the framework as outlined above should allow comparative analytic review, efficient risk allocation, and a mechanism for rational Episode of Care reimbursement.

But 10 years in, there doesn’t seem to be much movement in this area, particularly for primary care. Most of Episodes of Care / Clinical Bundles programs that exist today have been designed for serious medical conditions that are most often seen or treated in a hospital setting. This makes sense given those environments are also the highest cost areas in healthcare; however, I think there is merit to seeing how Episodes of Care can be applied to primary care as the payment engine for Achievement Medicine.

At Crossover, we have already begun experimenting with pricing our integrated, comprehensive primary care services as Episodes of Care. While the conditions treated may seem less complex, creating Episodes of Care within primary care remains challenging given varied acuity (simple, moderate, complex), time sensitivities (preventive, routine, urgent, emergent), and diagnostic or therapeutic load (light, medium, heavy). Despite these obstacles, we are forging ahead because we fundamentally don’t believe the transactional nature of Activity Medicine – mired in the “tyranny of the visit” and its associated coding gamesmanship – is the right organizing framework, innovation model, nor payment mechanism for next generation primary care.

We are excited about the possibility of an alternative payment approach that encourages care delivery innovation; that organizes, prices, and executes a complex set of activities in novel, value creating ways; and creates a way to reallocate risk, review results, and rationally reimburse. The Episode of Care is best shared “shaken, not stirred” with a simple case study in my next post.

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