Episode-Based Payments for Pregnancy

Here is another piece of research trying to understand what the effect of bundled or episode-based payments may be on utilization, outcomes and spending.  It focuses on a pregnancy and delivery episode payment program in Arkansas.   (NBER Paper)   Arkansas implemented a mandatory pregnancy episode payment system in 2013, with both Medicaid and the state’s dominant commercial payer, Arkansas Blue Cross Blue Shield, participating, as well as other commercial payers.  The method used was a spending target, adjusted by patient characteristics, with fee-for-service payments along the way and a reconciliation on a quarterly basis.  Each episode had a primary provider, who would be responsible for returning as much as 50% of excess spending or could earn as much as 50% of the savings.  The episode covered pregnancy, delivery and 60 days after.  The targets appear to have been pretty generous because the majority of the providers were eligible for savings in the first few years.  The hope in implementing the program was that the primary providers responsible for a pregnancy episode would be discouraged from overuse of primary provider services and would be discouraged from excessive referrals and/or referrals to expensive providers.

The analysis compared spending in Arkansas to that in surrounding states.  There was a 3.8% reduction in overall spending.  This mostly resulted from a lower use of referral or indirect services and in particular from lower inpatient facility spending.  This reduction in inpatient spending was further mostly due to price, not utilization.  And the cause appeared to be more referrals to lower-priced institutions, not negotiating reduced prices with hospitals.  This would appear to demonstrate that if properly incentivized, physicians can be agents to help lower prices or foster competition among the many kinds of providers that they direct care to or write referrals for.  The results are also once again consistent with the idea that price is our spending issue and that we can find mechanisms to help reduce those prices, even in the commercial market where large health systems have so much market power and large health plans have so little incentive to challenge that market power.  Quality appeared to be modestly improved during the course of the episode-payment program, but was measured only by rate of certain screening tests.  But there did not appear to be reason to be concerned that the new payment method was leading to worse outcomes.