The purpose of Consumer-Driven Health Plans with their trademark high deductibles and HSA accounts was to make the consumer more particular about the medical services they seek and have a financial stake in their purchasing decisions. Unfortunately, health care is one of the only commodities in which the cost of services is essentially hidden from the parties that purchase them. It is crucial to begin to reverse this process by not only having the patient recognize the full cost of services, but also to allow easy access to the prices of competing providers.

Though set fee schedules (see posting of 9/24/09 below) would be a great first step in this process, they will not be the “silver bullet” for consumer-driven plans. The problem is that the frontline consumer – the patient — does not understand the complexity and course of services that will be required to treat them for a particular episode of illness, and they will therefore have difficulty in selecting their caregiver based on these fees. Additionally, a set fee schedule does nothing to address the inefficiency and abuses of the fee-for-service paradigm where physicians are paid for the quantity of services, rather than the quality or efficiency of those services. 

It is for these reasons that the idea of an episode-based-payment (“EBP”) system has been growing among experts in the health care field. This system works from the concept of bundling services in order to execute a particular course of treatment from beginning to end for a given condition/illness/etc., such as pregnancy, chicken pox, broken bones, etc. In theory, all physician services, ancillary services, hospital services, prescription drugs, etc., associated with complete patient care would be included in one price, thereby making it easier for purchasers to understand the cost of such care. It would also create incentives for providers to deliver care efficiently and allow them to compete fairly on this basis. 

As one could imagine, the actual development and implementation of this system would be complex. A host of issues need to be addressed such as:

• What constitutes an episode of care? What services are included?
• What are the appropriate payment rates?
• How should the bundled fee be allocated and who is responsible for the care?
• How is an EBP system implemented?

We’d like to recommend the following two articles as a primer for these issues and as a great introduction to EBP. One is written by the National Institute for Health Care Reform and can be found at the following link:

http://www.nihcr.org/publications/EpisodeBasedPayments.html

The other article was written by Deloitte and is located at:

http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/us_chs_EpisodeBasedPayment_PerspectivesforConsideration_091609.pdf