Payment Expert Links Medical Home to Reducing Hospital Readmissions

Patient-centered medical homes, or PCMHs, should take responsibility for reducing hospital readmissions to demonstrate the true value of the medical home and create a clear business case for adequately funding the PCMH model. That's according to Harold Miller, president and CEO of the Network for Regional Healthcare Improvement and executive director of the Center for Healthcare Quality and Payment Reform. Miller spoke here during a June 10 forum on payment reform sponsored by the Robert Wood Johnson Foundation.

Congressional members are considering various payment models as they debate issues related to health care reform, including the PCMH and preventable hospital readmissions. Improving the delivery of primary care services and reducing these readmissions are important goals that should be addressed concurrently, said Miller, rather than separately, as they are now.

According to Miller, who also is an adjunct professor at Carnegie Mellon University's Heinz School of Public Policy and Management in Pittsburgh, the majority of preventable hospital readmissions involve patients with chronic conditions, making chronic disease a major driver of health care costs. He pointed to studies that have shown that simple interventions targeted at patients with chronic diseases -- such as patient education, self-management support and immunizations -- result in significant reductions in hospital admissions and readmissions, and he noted that such interventions are the very services provided by the PCMH.

"The reductions and savings you achieve through these interventions vastly outweigh the cost of the interventions," Miller said.

However, the prevailing physician payment systems prevent these types of interventions from being used more often. "Doctors and hospitals make more money by delivering more inpatient procedures," he said.

At the same time, key primary care interventions such as telephone consultations and case-management services often are not covered, even though these types of services also can reduce hospital admissions, Miller said.

Miller said the prevailing fee-for-service payment system does not give providers incentives to control the number of services provided or the number of episodes of care. He compared health care costs to a balloon, saying that under a fee-for-service system, Medicare and other payers squeeze on one end of the balloon -- the price of individual services or whether a service is paid for at all -- in order to contain costs. But this action only creates more pressure to increase the number of services provided, he said.

According to Miller, one of the goals of payment reform is to give providers more responsibility for other factors that have a direct bearing on costs, such as the number of episodes of care that a patient experiences and the number and types of services used to treat those episodes.

Capitation is one approach developed to make providers more responsible for the overall cost of care. Under capitation, the insurer gives the provider a single, per-person payment to cover all costs for services, thus reducing incentives to provide unnecessary services, he said.

Capitation has important advantages because it gives providers the flexibility to decide what services to deliver, Miller said. But in many cases, insurance companies have paid providers the same amount under capitation regardless of patients' health status, thus penalizing providers for taking sicker patients, he added.

Other payment system options address the problems of fee-for-service without creating the problem of capitation, Miller said. One such system, known as episode-of-care payment, gives providers a single price for a particular episode of care, with the price varying depending on the severity of the patient's condition. If a person has heart disease, for example, the provider is not at risk for whether the person suffers a heart attack, but is responsible for efficiently and effectively treating the heart attack if it does occur.

"An episode-of-care payment system carries some very significant advantages because it gives the provider an incentive to eliminate unnecessary services, but also gives the provider flexibility to decide what services are most appropriate to provide," said Miller.

The biggest disadvantage of episode-of-care payment is that it gives no incentive to prevent episodes of care, he said. For a person with heart disease, for example, payment based on care given during heart attack episodes provides no incentive to prevent heart attacks in the first place.

Miller described another payment mode called comprehensive care payment, which makes providers responsible for the number of episodes of care and for the cost of individual episodes. Under this model, a provider is paid to manage a patient's heart disease, and the payment amount varies according to disease severity. The provider would be responsible both for trying to prevent attacks, as well as for providing care during heart attack episodes, should they occur.

The fee-for-service system is appropriate for immunizations and simple injuries where the goal is to increase the use of services, Miller said. Episode-of-care payments are better suited for conditions, such as hip fractures and labor and delivery, where there is no evidence that episodes are occurring too frequently.

Comprehensive care payments, on the other hand, are ideal for conditions, such as congestive heart failure and other chronic diseases, where the goal should be to reduce the number of episodes and hospitalizations, Miller said.

"We can use different payment methods for different kinds of patients," he said. "It doesn't have to be one system for everything."

However, the payment method is only part of the problem. The other issue, Miller said, is payment level.

"Some things we underpay for today, and some things we overpay for," he said. "Even if we switch to a new payment system, we still have to make sure we are pricing episodes or comprehensive care payments properly."

Miller also stressed the importance of having all payers change their payment systems, citing the difficulty of asking providers to change the way the way they deliver care for some patients but not others. He cited several examples across the country where commercial payers are collaborating on new payment systems, and noted that it's important for Medicare to participate in these kinds of payment reform efforts, as well.