Policy Makers Will Need A Way To Update Bundled Payments That Reflects Highly Skewed Spending Growth Of Various Care Episodes

Abstract

Bundled payment entails paying a single price for all services delivered as part of an episode of care for a specific condition. It is seen as a promising way to slow the growth of health care spending while maintaining or improving the quality of care. To implement bundled payment, policy makers must set base payment rates for episodes of care and update the rates over time to reflect changes in the costs of delivering care and the components of care. Adopting the fee-for-service paradigm of adjusting payments with uniform update rates would be fair and accurate if costs increased at a uniform rate across episodes. But our analysis of 2003 and 2007 US commercial claims data showed spending growth to be highly skewed across episodes: 10 percent of episodes accounted for 82.5 percent of spending growth, and within-episode spending growth ranged from a decline of 75 percent to an increase of 323 percent. Given that spending growth was much faster for some episodes than for others, a situation known as skewness, policy makers should not update episode payments using uniform update rates. Rather, they should explore ways to address variations in spending growth, such as updating episode payments one by one, at least at the outset.

Adjusting Health Expenditures for Inflation: A Review of Measures for Health Services Research in the United States

“…; Rosen et al. ; Roehrig and Rousseau ; Starr, Dominiak, and Aizcorbe ; Aizcorbe and Nestoriak ; Dunn et al. , ; Dunn, Leibman, and Shapiro ).…”

“…Rosen et al. () found that 10 percent of the conditions account for 82.5 percent of spending growth based on commercial claims data from 2003 to 2007. Large differences in growth rates are also found at the disease‐category level using BEA's HCSA data.…”

“…Several papers have conducted studies measuring the cost of treatment over time using either MEPS data or claims data for a comprehensive list of medical conditions (e.g., Aizcorbe et al 2013;Bradley 2013;Bradley et al 2010;Rosen et al 2013;Roehrig and Rousseau 2011;Starr, Dominiak, and Aizcorbe 2014;Aizcorbe and Nestoriak 2011;Dunn et al 2013Dunn et al , 2014Dunn, Leibman, and Shapiro 2015). BEA recently released a Health Care Satellite Account (HCSA) that reports spending and associated cost indexes by disease condition (Dunn, Rittmueller, andWhitmire 2015, 2016).…”

“…This discussion has focused primarily on the aggregate MCE index, but it is important to highlight that growth in the MCEs can differ markedly at the disease level. Rosen et al (2013) found that 10 percent of the conditions account for 82.5 percent of spending growth based on commercial claims data from 2003 to 2007. Large differences in growth rates are also found at the disease-category level using BEA's HCSA data.…”

High Spending Growth Rates For Key Diseases In 2000–14 Were Driven By Technology And Demographic Factors

“…However, the distribution of spending growth is specific to each condition, a point that has been highlighted previously. 16 There is a wide degree of heterogeneity in spending growth across conditions and in the likely factors driving their growth. For example, exhibit 3 shows that per capita spending for hepatitis is driven by rising treatment costs rather than by growth in prevalence.…”