Newtown, CT – July 1, 2016
If one of the goals of payment reform is to improve supply chain efficiency, then it stands to reason that the payment modality, adjusted for patient characteristics, should encourage the broadest substitution of service settings and supplies – While policy makers, often for pure political reasons, choose to deploy payment modalities that almost purposefully prevent the broadest substitution of service settings and supplies, private sector health plans and employers have embraced these simple concepts. Two of the champions of supply chain optimizations, Michael Porter and Bob Kaplan, recently held a live interactive webinar during which they laid out how certain payment modalities may prevent the deepest and best transformation of the industry, while others would encourage it. To expand on this particular point, during the most recent AcademyHealth annual research meeting, our colleague Andrew Wilson featured a study in which he analyzed the total episode price differences for certain common procedures done on commercially insured individuals. The upshot is that site of service matters, without any negative impact on quality of care. In addition, the analysis also shows that high priced health systems are always high priced, whether a procedure is done outpatient or inpatient. Let’s also note that the analysis adjusted results for patient characteristics (what is commonly known as severity/risk adjustment), which was the topic of another study that Andy featured at the research meeting.
What this means to you – The current strategy used by many employers to get better results for certain common procedures is to select a few national “centers of excellence”. Typically these are large academic or quasi-academic centers with large inpatient facilities, and almost always higher priced in their market than the lesser-known competition. As such, most of the procedures that are performed on employees who often have to travel significant distances, could be done just as well and for significantly less at local facilities. Innovative companies such as Carrum Health are bringing the clunky and often inefficient distant center-of-excellence model to local markets and demonstrating success. Andy’s featured study clearly shows that the arbitrage of settings can only be done locally, not by shipping patients to distant inpatient facilities. Of course, this type of setting and service substitution, what everyone in all other industries simply calls supply chain management, yields grunts and squeals from the pigs at the trough. The first reaction is to cry foul and accuse some providers of simply cherry-picking patients. And that’s why Andy’s other featured study is so important. While Medicare officials have wrongfully stated that they can’t find a method to adjust for patient characteristics at the episode of care level, Andy shows how one such method does exist and is, in fact, effective at adjusting for patient differences. The bottom line here is simple. Payment modalities that, as Porter and Kaplan explain, continue to encourage consolidation of market power will not result in greater system efficiencies. However, other modalities, such as bundled payments, can and do encourage market efficiencies by laying bare that those who are more adept at setting and service optimization will do better. And because we can adjust payment and results for differences in patient characteristics, the market can finally function as it should. Now if only CMS stopped paying attention to the grunters and squealers….
Francois de Brantes