Redesigning Insurance Benefits and Consumer Cost-Sharing for High-Cost Surgical Services

The Integrated Healthcare Association is coordinating an episode of care payment initiative involving prominent health plans, hospital systems, and physicians organizations in California. he fragmentation of payment methods undermines efficiency and quality of care due to its effects on both providers and consumers. This effect is especially pronounced when considering high-cost surgical procedures that encompass multiple caregivers and facilities. On the provider side, each physician now typically is paid individually regardless of the total cost and final outcome of the patient’s care, while the hospital is paid per discharge or based on the number of days the patient is in the facility. The care provided before and after discharge often is even more fragmented and involves an additional cast of providers and facilities. Under this contemporary scheme, there is little incentive for any one caregiver to pay attention to the outcome of the patient’s entire course of care, as distinct from each caregiver’s individual contribution. One major objective of shifting to bundled payment for all services provided during the episode of care (EOC) is to create incentives for collaboration among all participants. On the consumer side, there currently is almost no impetus or ability to compare price and quality across alternative clinical treatments and provider organizations. The consumer’s out-of-pocket cost-sharing responsibility typically is comprised of a confusing mix of deductibles, coinsurance, copayments, and annual out-of-pocket payment maximums that do not promote informed, cost-conscious choice. Consumers often must pay out-ofpocket for at least part of the ambulatory services that might forestall the need for expensive surgery, but then often bear no responsibility for the cost implications of whether to have surgery, where to have it, and which implantable device to use as part of the procedure. In this sense, consumers are both under-insured and over-insured for high-cost hospital and ambulatory surgery procedures such as orthopedic surgery, cardiac angioplasty, and bariatric surgery. The Integrated Healthcare Association (IHA) is coordinating an episode of care payment initiative involving prominent health plans, hospital systems, and physician organizations in California. In order to support that initiative, it is also sponsoring a project to explore the state of innovation in benefit design and how those emerging designs could support EOC payment methods. This Issue Brief describes the need for benefit redesign and the principal obstacles that must be overcome. A subsequent Brief will highlight the most promising new benefit structures. Issue Brief No. 1 ■ September 2011