Executive Summary
Employers sponsoring group health plans face the ever-growing challenge of rising health care costs, and the increasing expenses they place on the plans and their enrollees alike. To respond to these pressures, employers have experimented with a variety of insurance design options and payment models, to varying degrees of success, mostly modest. However, research and field implementations show that episode-based payment arrangements present an opportunity to stem these rising costs, while increasing the coordination of care in the fragmented US health care system. In these models, plans and groups of providers agree to a flat fee for all services related to a single episode of care. The providers then work within that budget in a coordinated way to deliver cost-effective and quality care.
To achieve the full potential of episode-based payments, plans and providers must align their goals and incentives with those of the employees (and patients) they serve. The typical employer-sponsored group health plan design today is not calibrated to encourage patients to select the highest quality or most efficient providers, and does not reward patients for selecting a provider who will deliver care at a single episode-based price.
Employers can design creative cost-sharing frameworks that give enrollees financial incentives to join with employers and episode-of-care contracted providers ("EOC contracted providers") in promoting the episode-based care model. This paper describes just such a framework: the Episode-based Benefit Plan.
In the Episode-based Benefit Plan, patients are rewarded with low cost sharing and a predictable price for an entire episode of care when they select a high-value EOC contracted provider. Their cost-sharing obligations increase as they move to more expensive EOC contracted providers. And enrollees who decline to use EOC contracted providers may face even higher cost-sharing obligations for the individual services they utilize, some of which might not accrue toward their annual maximum out-of-pocket cost-sharing limits. Coupled with strong transparency and patient education tools, this simple framework of cost sharing can motivate patients to make wise health care choices that benefit themselves, plans and providers alike.
Introduction
Why an Episode-based Benefit Plan?
As health care costs grow nationwide, employers are increasingly driven to manage these increases through higher employee cost sharing. Employee out-of-pocket spending for employer-based PPO coverage increased nearly 70% over the past decade.1 Such high cost sharing presents financial barriers that can lead patients to forgo both high- and low-value health care.2 Avoidance of necessary and preventive services can, in turn, lead individuals to experience poorer health outcomes and eventually require more costly emergency services and inpatient care. Another means of addressing increasing health care costs is network restrictions. According to the 2020 Health Care Delivery Survey by Willis Towers Watson,3 a benefits consultancy, close to one in five employers had implemented a narrow network in one or more regions where they have concentrations of employees. These narrow networks are designed to address the price of care, but not its utilization and, by their nature, restrict the choice of providers for plan enrollees.
Bundled programs, or episode-based payment programs, have grown in popularity as health care payers seek to improve care coordination while lowering costs and as an alternative to simply increasing cost sharing or narrowing networks. In contrast to traditional fee-for-service (FFS) models, where payers make separate payments for each service a patient receives, episode-based payments offer providers a single payment to perform a set of services within defined bundles or episodes. Providers who have agreed to this predetermined rate accept some financial risk for the cost of the services and are incentivized to deliver more efficient care. In 2016, the Center for Medicare and Medicaid Innovation (CMMI) tested episode-based payment through the Comprehensive Care for Joint Replacement (CJR) model and found costs for model participants were about 5% lower than the baseline.4 The federal government is continuing to build on this success, announcing its intention to move more patients to similar accountable care relationships where providers are "responsible for managing patients' care and are accountable for their patients' costs."5
However, innovation is needed to fully realize the potential of episode-based payments and ensure patient access to necessary services, all the while avoiding unnecessary network restrictions and high cost-sharing arrangements. To date, the episode-of-care model has existed largely as an arrangement between plan and provider. While patients benefit from the improved care coordination offered by episode-based payments, they rarely share in their financial benefits. As a result, patients are not financially motivated to participate in the success of episodes through provider selection or adherence to treatment recommendations. Even if they were financially motivated, oftentimes patients do not have sufficient information readily available to make an informed choice. Financial barriers to seeking care can persist as well, with high deductibles presenting barriers that discourage all patients from seeking needed care, with disproportionately high adverse impact on racial and ethnic minorities.6
Studies show financial incentives are most powerful in improving patient conditions when they target both patients and providers, rather than one or the other in isolation.7,8,9 Therefore, to maximize the effects of cost sharing on patients' health and improve the efficiency of care, plans should financially incentivize patients and providers together to strive toward the same outcomes. This combination of value-based payments and value-based insurance design is what has been recently recommended by VBID Health in a new white paper, "The Essential Role of Employers in Aligning Plan Design and Payment Reform to Improve Quality, Enhance Equity, and Promote Value,"10 authored by Drs. Fendrick, Chernew and Levin‑Scherz.
Our Approach
This white paper describes an approach to episode-based payments for self-funded employers that can remove barriers to high-value health care by aligning patients' OOP responsibilities with the value of a covered episode—for example, lower OOP responsibility for a chronic condition and higher for an elective procedure. The Episode-based Benefit Plan could be the sole plan offering for some or all employees, or it could be one of several plan choices where the employer prefers that approach. In either case, the considerations discussed in this white paper envision an underlying health plan that covers non-episodic care and addresses many standard plan features, including covered services and network arrangements. In that context, the Episode-based Benefit Plan offers cost-sharing options and price and quality transparency tools for patients, which can together serve as levers to encourage enrollees to visit providers offering high-value services at a lower price and discourage low-value care, helping reduce health care costs while ensuring patients receive the care they need.
The Episode-based Benefit Plan uses cost sharing, price transparency, and quality measures to align financial incentives for patients, with the financial arrangements negotiated between plans and providers. Through the Episode-based Benefit Plan, plan enrollees are offered a prospectively defined budget for each episode of care whether offered by an EOC contracted provider who has agreed to perform all services within the episode at a predetermined rate or a non-EOC contracted provider whose full episode price would only be known after the end of the episode. By reviewing the price of the EOC contracted provider, the member understands their financial obligations upon selection. Members who choose to see non-contracted providers for episode-related care will not have the same price transparency available and will subject themselves to uncertainty and potentially higher OOP costs. Further, the Episode-based Benefit Plan is designed to vary based on the employer's underlying plan type to maximize enrollees' incentives to seek higher-value care and participate in cost-saving behaviors. Combined with preventive care and opportunities for wellness benefits, the Episode-based Benefit Plan is a comprehensive benefit package that encourages enrollees to affordably and efficiently get the care they need in a manner that aligns with their employer's and providers' financial arrangements.
The particulars of each employer's current plan will differ, and as a result, so too will the final Episode-based Benefit Plan that it transforms into. This paper provides several options for employers to address differing needs. In order to illustrate how an Episode-based Benefit Plan might work, the paper provides a detailed example of how cost sharing could be tiered in a benefit plan to incentivize enrollees while also addressing actuarial and regulatory considerations.
In the example plan, enrollees whose health needs fall into an episode of care face a tiered cost-sharing model, with rates of cost sharing increasing as health care costs accumulate. Those enrollees who select an EOC contracted provider pay coinsurance based on the fixed price of the episode that is known to them in advance, and that likely falls into a lower cost-sharing tier. Consequently, their coinsurance obligation will be less when they select a lower-cost provider for the episode of care. Meanwhile, enrollees whose health needs fall into an episode of care and who do not select EOC contracted providers will be subject to the same tiers of cost sharing based on the actual accumulated provider charges (as allowed by the underlying plan) for the individual services incurred in each tier. As these unpredictable individual charges accumulate, the enrollee's cost sharing rises. But the plan's liability is capped relative to the price of the episode at a maximum allowable, with all costs above the maximum allowable borne by the enrollee, meaning these enrollees could pay a high out-of-pocket cost for choosing to use a non-EOC contracted provider.
Milliman, an actuarial consulting firm, has used this approach as the basis for its accompanying actuarial model.
This paper takes into consideration the specific regulatory constraints placed on self-funded group health plans, mostly under federal labor, tax and health care regulation. Every employer's circumstances may differ, and employers should consult their advisors to ensure compliance.
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Footnotes
1. NIHCM Foundation (see https://nihcm.org/publications/the-burden-of-rising-health-spending).
2. RAND HIE (see https://www.rand.org/pubs/research_briefs/RB9174.html).
3. 2020 Health Care Delivery Survey, Willis Towers Watson (see https://www.willistowerswatson.com/en-US/Insights/2020/10/2020- health-care-delivery-survey).
4. Lewin Group report on CJR (see https://innovation.cms.gov/data-and-reports/2020/cjr-thirdannrpt (p. 4).
5. Brooks-LaSure et al. (2021) (see https://www.healthaffairs.org/do/10.1377/hblog20210812.211558/full/).
6. Cole et al. (2020) (see https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2767589.
7. Barankay et al. (2020) (see https://jamanetwork.com/journals/jamanetworkopen/fullarticle/2771525?resultClick=3).
8. Wong et al. (2017) (see https://jamanetwork.com/journals/jamapediatrics/fullarticle/2657311).
9. Asch et al. (2015) (see https://jamanetwork.com/journals/jama/fullarticle/2468891).
10. See https://vbidhealth.com/wp-content/uploads/2021/09/Employer-Whitepaper-092021.pdf.
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