Instructions: Your answers should be brief but complete.
.
Part 1. Physician payment (20 points)
In traditional fee-for-service Medicare, physicians are paid on a per-service basis. Payments are based on the “relative value units” of a particular service, reflecting the relative costliness of inputs.
A. How does the mix of services provided by primary care physicians affect their reimbursement relative to specialists? (2 points)
B -Describe the principal-agent problem in fee-for-service payment of physicians and physician-induced demand (also called supplier-induced demand).
-Describe the findings of Baker (2010).
-What does this imply about physician-induced demand? (3 points)
C. – Compare the structure of payment under the Alternative Quality Contract compared to fee-for-service reimbursement.
-How does this change the incentives for the volume of services provided by physicians?
-Are the findings of Song, et al. (2014) consistent with your theoretical prediction? (3 points)
D. What is a potential unintended consequence of “global budgets” such as that in the Alternative Quality Contract? How does the AQC attempt to mitigate this incentive, and was the attempt successful? (3 points)
E. In April 2015, Congress passed the Medicare Access & CHIP Reauthorization Act of 2015 (MACRA). Under MACRA, starting in 2019 physicians will either be paid either based on: (a) fee-for-service reimbursement, with bonuses or penalties based on quality and resource use, or (b) they will receive regular 5% payment rate increases between 2019-2014 if they participate in alternative payment models.
It is yet to be finally determined, however, what will count as an alternative payment model. Below are two simplified scenarios from Hussey, Liu, and White (2017):
Scenario 1: Alternative payment models include both patient-centered medical homes (low financial risk, essentially fee-for-service, but physicians receive a “case management” fee) and accountable care organizations (physicians are at financial risk for spending above a target).
Scenario 2: Alternative payment models just include accountable care organizations (Hussey et al. 2017).
How might physician and hospital spending differ between Scenarios 1 and 2? Please explain your answer based on the lecture and course readings. (4 points)
F. Some policymakers have advocated for malpractice reform as a means for reducing health care spending.
• Drawing from the readings and the lecture, describe conceptually why malpractice and health care utilization may be related. (2 points)
• Do you think malpractice reform would reduce unnecessary health care use? Cite empirical evidence for and against. (3 points)
Part 2. Medicare payment of hospitals and post-acute providers and bundled payment (14 points)
CMS’ Bundled Payments for Care Improvement Initiative (BPCI) defines episodes of care (initiated by hospital stays) and spending targets for traditional Medicare enrollees. Providers continue to be paid on a fee-for-service basis. If total spending exceeds the target, then the “contracting entity” pays Medicare the difference. If total spending is below the target, then Medicare pays the contracting entity the difference.
Consider BPCI Models 2 and 3 (listed in Table 3.1 of MedPAC (2013), pasted below), where a hospital stay initiates each model. For this exercise, consider a hospital as the contracting entity directing care under Model 2 and a skilled nursing facility (SNF) as the contracted entity directing care under Model 3.
Note: the MedPAC (2013) report on the reading list (optional reading) provides a great overview of the BPCI program and may help you think about these questions, particularly pp 59-62.
Consider two conditions:
Condition 1: analysts believe patients admitted to the hospital for Condition 1 are often unnecessarily discharged to an institutional post-acute care provider (for example, a skilled nursing facility or inpatient rehabilitation facility) where a home health provider could provide care more efficiently and effectively.
Condition 2: analysts believe that institutional post-acute care (such as SNF care) is very often clinically necessary after a hospital discharge for Condition 2. However, there is a high incidence of unnecessary hospital readmissions from post-acute care providers for patients with Condition
2. In addition, analysts believe SNF stays are too long for patients with Condition 2.
A. Separately describe which BPCI model is the best match for Condition 1 and 2. In each case, justify your decision by describing which contracting entity is in a better position to improve the efficiency and effectiveness of care, and explicitly describe the change in payment incentives from traditional Medicare to bundled payment for the contracting entity. (6 points)
B. Explain an unintended consequence of bundled payment and describe a feature of BPCI that may offset this incentive. (2 points)
C. List and describe at least one advantage and one disadvantage to having a longer duration episode covered by the bundled payment. (4 points)
D. The goal of bundled payment is to produce a set of incentives to deliver care that maximizes both quality and efficiency. In the week 5 lecture, we considered alternative theories for the existence and behavior of nonprofit hospitals. Under which theory would you expect the largest change in treatment patterns when payment switches from fee-for-service to bundled payment? Provide support for your answer. (2 points)
References
Baker, L. C. 2010. “Acquisition Of MRI Equipment By Doctors Drives Up Imaging Use And Spending.” Health Affairs 29(12): 2252-59.
Hussey, P. S., J. L. Liu, and C. White. 2017. “The Medicare Access and CHIP Reauthorization Act: Effects on Medicare Payment Policy and Spending.” Health Affairs 36(4): 697-705.
MedPAC. 2013. “Approaches to bundling payment for post-acute care.” In Report to the Congress: Medicare and the Health Care Delivery System. Washington D.C.: Medicare Payment Advisory Commission, .
Song, Z., et al. 2014. “Changes in Health Care Spending and Quality 4 Years into Global Payment.” NEJM 31(8): 1885-94.
