Episodes as a steppingstone to full risk capitation in the shift to value-based payment

May 9, 2022 / By Gretchen Mills

The shift of the U.S. health care system from fee for service (FFS) to value-based care and payment now seems inevitable. To date, the transition has been relatively slow, as many payments are still being made using FFS. The Center for Medicare & Medicaid Services (CMS) reaffirmed its commitment to the shift to value, citing a goal of 100 percent of Medicare beneficiaries being treated by a provider under a value-based care model by 2030.

The waning of the COVID-19 public health emergency presents an opportunity for providers to refocus on value-based care initiatives. With the announcement of the overhaul of the Global Direct Contracting model, now rebranded as the Accountable Care Organization Realizing Equity Access and Community Health Model (ACO REACH), there is renewed energy around moving payment transformation further along the path towards full risk capitation, also called global capitation.

Capitation payment is a prospective per member per month payment based on the estimated total cost of care for a population for a specific period (i.e., one year) divided by the total number of covered individuals. Capitation is typically described as the payment method that is furthest along the path to value in terms of shifting cost and utilization risk to contracted providers.

Primary care services are routinely capitated by payers as primary care is predictable with relatively low outlier cost risk. COVID-19 accelerated primary care capitation as a source of steady reliable income. Global capitation for the total cost of care and specialty capitation are less common because there can be larger cost outliers making it more difficult for providers to accept that level of risk.

Episodes or bundled payments can be an interim step for payers and providers to collaborate in value-based payment contracts prior to moving to global capitation. Episode payment models group all the services for a single medical event together for payment (like how diagnostic related groups (DRGs) bundle hospital services for inpatient acute facility care).

For example, CMS has had positive response to its Comprehensive Care for Joint Replacement (CJR), where hospital, physician and post-acute care are bundled for hip and knee joint replacement services. CMS has faced challenges retaining participants in CJR once it shifted some metropolitan statistical areas (MSAs) to voluntary status, with only 324 participants remaining in the mandated 34 MSAs.

The Lewin Group’s year 2 model evaluation reported that, “Compared to model years 1 and 2 participants, physician group practices (PGPs) participating in model year 3 were smaller, as indicated by the number of clinicians and had fewer annual discharges and procedures for BPCI advanced clinical episodes.”

These models have complexities related to utilization and cost outliers within an episode and overlapping episodes for the same individual. The devil is in the details in episode payment bundles. The following concerns prevent clinicians from fully engaging in episode contracts:

  • How do you determine which services to attribute to a specific episode?
  • How do you handle costly outliers that fall outside the norm?
  • How do you handle the impact of chronic conditions and comorbidities?

For episodes of care to be more broadly adopted, the following issues need to be addressed:

  • Limiting an individual to one episode at a time
  • Expanding episodes to cover outpatient services, including chronic conditions
  • Allowing episodes to cover individuals with multiple comorbidities

If you are not ready to jump to using episodes for payment transformation, consider incorporating episodes into your analytics. Episodes of care solutions can be used not only for retrospective/prospective payment, but also as an analytic tool to understand risk-adjusted resource utilization against a meaningful benchmark.

Areas of efficiency and inefficiency can be identified, and best practices shared amongst the group or network, and opportunities for improvement subject to quality improvement techniques. As risk relationships expand familiarity with and use of episodes of care, methodologies can help identify strengths and weaknesses and support successful performance in these innovative models of care.

Gretchen Mills is manager of market strategy for populations and payment solutions at 3M Health Information Systems.

Identify patient-focused episodes using a clinical model that categorizes episodes of care to reflect a patient’s total burden of illness.