The Significance of Sophistication in Episodes of Care and Case Rates

Submitted by hci3-usr on Friday, June 10, 2016 - 05:08

Newtown, CT – June 10, 2016

There’s a reason we named the PROMETHEUS Payment’s episode of care budgets Evidence-informed Case Rates, and many are starting to understand why – A decade ago, when we broadly piloted the concept of paying a global fee – a case rate – for an episode of care, we correctly anticipated several effects.

First, we knew there was underuse baked into current practice patterns, in particular in the management of patients with chronic conditions, and that the case rate for the episode of care should therefore be evidence informed. In other words, if best practice suggests that patients with diabetes should be seen four times a year by their managing physician, receive four comprehensive blood tests and a few other services, at a minimum, then the base global fee should reflect that and not create an incentive to compress needed services.

Second, we also realized that first adopters would likely be high performers and that it could become harder over time for them to improve performance. As such, the margins on the global fee could diminish rapidly if the price was continuously rebased. We therefore built in the ability to add a margin. In fact, the M in PROMETHEUS stands for Margin.

What this means to you – Much of the early and continuing criticism of Medicare’s bundled payment program, some of which is now mandated, centers around these two effects.

Hospitals, to a large extent, are kept immune from compression through rebasing because their payment is fixed. In other words, they can create however fat a margin they want by reducing production costs and they get to always keep the difference between the costs of producing a stay and the DRG payment. Not so for all the other providers, and if those other providers don’t have a mechanism to formally build a margin, they will have none left.

Additionally, as payments for episodes of care appropriately move from procedures and acute events to illnesses and other conditions, monitoring underuse and creating allowances for a set of core services should be an integral part of the pricing mechanism. A month ago we released an API through which all of our episode definitions, the same that we use to derive Evidence-informed Case Rates, are made available at no cost. Over the next several months we will add our tables of core service counts and benchmark prices for certain episodes. These new data should help those wishing to refine their bundled payment approaches.

The goal of alternative payment models is to create better accountability for costs and quality of care, and well-designed episode of care payment is, in fact, delivering those goals. Back in 2006-2007 many derided the PROMETHEUS Payment as too complicated when really it never has been. It has been and continues to be sophisticated, as good alternative payment models should.

Dumb, brute-force models have failed, and are failing now, for very predictable reasons. We’ll let you choose which type of model you’d like to use. We made our choice a decade ago.


Francois Sig


Francois de Brantes
Executive Director