Purchasing health care - TU Berlin€¦ · Purchasing health care. Purchasing and remuneration of...

Reinhard Busse, Prof. Dr. med. MPH FFPH FG Management im Gesundheitswesen, Technische Universität Berlin

(WHO Collaborating Centre for Health Systems Research and Management)

&

European Observatory on Health Systems and Policies

Purchasing health care

Purchasing and remuneration of providers

Direct payments

(out-of-pocket)

Funding

flows

Collecting

organizations

Pooling

organizations

Resource

allocation

(2)

Individuals +

employers Health care

Taxes, contri-

butions and

premia

(prepaid

resources)

Decisions on depth, breadth and height of coverage

Resource

allocation

(1)

Benefit

flows

Purchasing

organizations

Providers

Resource

allocation (3)

(remuneration

of providers)

Entitle-

ment

Ministry of Health/

NHS

Hospitals

Resource allocation

– based on

geographical and

(more often)

institutional basis

Advantage: providers

know budget in advance

Disadvantage: not based on actual workloads,

outcomes or new technologies

Before …

Purchaser (region,

sickness fund ...)

Providers

Purchasing

based on

contracts based

incorporating

cost-

effectiveness,

needs, quality ...

Advantage: services get financed

according to population health gain

Disadvantages: requires information which is

often not available or comparable

… now

& future

But what is purchasing?

• Diversity in understanding and definitions: resource

allocation to service providers, payment, contracting,

commissioning,…

• Purchasing is the process by which pooled funds are

paid to providers in order to deliver a specified or

unspecified set of health interventions (WHR2000)

• From passive to active (strategic) purchasing?

– Who should buy?

– For whom?

– What and how much?

– From whom?

– How to buy?

– .

– .

In theory … it ought to work!

Strategic purchasing =

“proactive decisions …

about which services

should be purchased,

how and from whom”

(WHO 2000)

• Purchasing entities allocating money to health care providers, on behalf of patients for the exchange of health services.

• A set of relationships (e.g. purchaser – provider;

government – purchaser; purchaser – patient)

• A set of mechanisms (or “tools”) to achieve certain objectives in the purchasing process:

• Contracting • Incentives • Health Needs Assessments • …

Strategic purchasing involves:

• From passive to active (strategic) purchasing?

• Central function for improving performance

– Links resource allocation to plans/priorities

– Levers to influence provider behavior

– Encourages management decentralization

– Enables purchaser and provider competition

In theory … it ought to work!

Citizen

Purchaser

Government (Principal)

(Agent)

A framework to analyse purchasing

Relationship 1: Citizen - purchaser

Citizen

Purchaser

Government (Principal)

(Agent)


Relationship 2: Government - purchaser

Citizen

Purchaser

Government

(Principal)

(Agent) Provider


Relationship 3: Purchaser - provider

1. Incorporate population health needs

2. Empower the citizen

3. Strengthen government stewardship

4. Develop appropriate purchaser organization(s)

5. Ensure cost effective contracting

6. Employ the right payment mechanisms (financial incentives)

7. Establish appropriate provider organizations

How do we improve purchasing?

1. Incorporate population health needs

• Lack of evidence on health needs

• If existing, not incorporated into purchasing

decisions

• Ensure structural or functional integration of

public health into purchasing

– Public health skills in purchaser organizations?

– Particularly problematic in SHI countries (with few exceptions, e.g. France, Netherlands)


• Ascertaining the views of citizens - Voice

–Consultation of public views

–Advocacy groups


• Enforcing purchasers accountability - Voice

–Defined benefit package/ entitlements

–Formal representation in purchasing boards

–Patients rights legislation / charters

–Ombudsperson



• Enforcing purchasers accountability – Voice

• Enabling choice of purchaser and/or provider -

Exit


Estonia France Kyrgyz

-stan

Lithu-

ania

Russian

Fede-

ration

The

Nether-

lands

United

King-

dom

Choice of

purchaser

Formal

represen-

tation

Claims in

courts

No

Elected

represen-

tatives

No

No

No

Yes

No

No

No

No

Elected

represen-

tatives

Yes

Yes

No

Yes

Yes

Elected

represen

tatives

Yes

No

Appoin-

ted

represen

tatives

No

“On an individual level, the patients rights

developments have resulted in effective tools for

influencing purchaser decision making particularly

when legally codified.

However, those developments may incur increased

costs, threatening social solidarity and financial

stability;

but they are a consequence of a democratic

evolutionary process in many health systems and

cannot be ignored.” den Exter


3. Strengthen government

stewardship

• Formulating national health policy / plan

• Linking health targets into purchasing decisions

• Establishing an integrated regulatory framework: Rules for contracting, quality standards, payment requirements, price regulations, negotiation and litigation rules, open information, monitoring and evaluation, accreditation of providers …

• Low capacity and credibility

– Information and technical skills

– Conflict between public guarantees and funding

– Cultural change from command and control

• Unclear organizational roles

– Accountability lines between insurance fund / purchaser and the Ministry of Health


stewardship

If some governments have been unable to

row, how will they be able to steer?

Or: if governments do not have the ability

to provide services themselves, it is

unclear why should they be able to

exercise stewardship!


stewardship

• What is the right type of purchaser?

–Region/ area/ district, e.g. Italy, Spain, Sweden ...

–Municipalities, e.g. Finland, Russia ...

–Sickness funds, e.g. Germany, Netherlands, Hungary …

–Primary care budgets, e.g. UK, Sweden, Catalonia ...

4. Develop appropriate purchaser

organization(s)

• What is the right type of purchaser?

• What is the right size of population coverage?

• Macro, meso or micro purchasing?

4. Develop appropriate purchaser

organization(s)

Different market structures for purchasing organizations

Single

Multiple

National

purchaser

Cover geographically

distinct population?

Regional

purchaser Yes

No

Compete for clients?

Yes

No

Multiple

competing

purchasers

Multiple non-

competing

purchasers

Market structure Countries

GR (NHS), IS,

ROK, SGP

AUS, CDN,

DK, E, FIN,

IRL, I, N, NZ,

P, S, UK, USA

(Medicaid)

A, F, GR

(sickn. funds),

L, J

B, D, NL, CH,

USA

(Medicare)

Single or multiple purchasers for

main benefit package?

Czech

Republic

Estonia Germany Hungary Italy

Main purchasers

Number

Average population

size

7 health

insurance funds

Largest fund:

5.97 million.

Others: 140,000

to 950,000

1 health

insurance fund

1,230,000 (93%

of population)

123 sickness

funds

Ca. 650,000

(variable from

1000 to >9.5

million)

1 health

insurance fund

10 million

197 local

health units or

regional

governments

300,000

Organizational

groupings

Originally

occupational

Geographic Originally

occupational/

geographical/

“substitute”

Geographic Geographic

Competition

Choice of purchaser

Premiums/

contribution rates

Statutory benefits

Complementary

benefits

Yes

Fixed

contribution rate

Uniform

No

No

Fixed

contribution rate

Uniform

Yes

Yes

Variable

contribution

rate

Uniform

Yes

No

Fixed

contribution

rate

Uniform

No

No

Fixed

capitation rate

Uniform

No


• Linking contracting with planning

–Planning: assessing needs, health policy strategy, establishing priorities, service models

–Purchasing strategy: service requirements, budget constraints and performance targets

–Contracting cycle: identifying and selecting providers, negotiating and agreeing a contract, managing and monitoring the contract

• Promoting and ensuring quality

– Which services? (”Doing the right thing”): Health Technology Assessment

– Who may provide?: accreditation, certification

– minimum volume numbers (e.g. Germany)

– How? (“Doing the thing right”): guidelines, protocols, standards of care

– necessary documentation

– quality targets/ benchmarking (process)

– Results?: quality targets/ benchmarking (outcome)


• Paying for performance

–Step 1: from input-based monetary allocation to (block) contracts

–Step 2: from block contracts to activity-related cost and volume contracts ► increased specification of product (e.g. DRGs)

–Step 3: make quality/ outcome data collection and reporting mandatory

–Step 4: from activity-related to outcome-based (initially only as bonus?)


• Linking contracting with planning

• Promoting and ensuring quality

• Paying for performance


• Only works if linked to the planning process

• Goes against need for integration / coordination

– Ageing and chronic diseases

– Disease management programmes

• Choice of consumer vs choice of purchaser

– Consumer resistance

• Scarce implementation capacity

• Low leverage of most purchasers: political barriers

Selective contracting

Some Paradoxes

6. Employ the right payment

mechanisms (financial incentives)

Physician Hospital

Time-based • salary • fixed budget (based usually

on historic allocations)

Service-

based

• fee for service

• fee for patient

episode (e.g.,

admission)

• target payments

• fee for service

• fee per hospital day (per

diem)

• fee for patient episode

• budget based on case-

mix/utilization

Population-

based

• per capita

payment

• territorial payment

• block contract

Source: Ensor and Langenbrunner (2002)

The basic question: What do we want when we pay

hospitals (or other providers)? That …

• they care for patients when they need care?

… and do not risk-select …

• they provide services? … and are not idle …

• expenditure is well controlled? … and not sky-rocketing …

• services are efficiently provided? … and money not wasted …

• service provision is transparent? … and not opaque …

• services are provided only if appropriate?

… and not unnecessarily …

• provided services are of high quality?

… and do not endanger patient safety …



Payment mecha-

nism

Patient needs (risk

selection)

Activity Expendi-

ture control

Technical efficiency

Trans-parency

Quality Admini-strative

simplicity Number of services/

case

Number of

cases

Fee-for-service + + + ― 0 0 0 ―

Global budget ― ― ― + 0 ― 0 +

Incentives of different forms of hospital payment



Payment mecha-

nism

Patient needs (risk

selection)

Activity Expendi-

ture control


Trans-parency



case

Number of

cases


DRG based case payment

0 ― + 0 + + 0 ―




Payment mecha-

nism

Patient needs (risk

selection)

Activity Expendi-

ture control


Trans-parency



case

Number of

cases


DRG based case payment

0 ― + 0 + + 0 ―


European

countries 1990s/2000s

USA 1980s

“dumping” (avoidance), “creaming”

(selection) and “skimping” (undertreatment)

up/wrong-coding, gaming

Incentives of DRG-based

hospital payment

Strategies of hospitals

1. Reduce costs per

patient

a) Reduce length of stay

optimize internal care pathways

inappropriate early discharge (‘bloody discharge’)

b) Reduce intensity of provided services

avoid delivering unnecessary services

withhold necessary services (‘skimping/undertreatment’)

c) Select patients

specialize in treating patients for which the hospital has a competitive

advantage

select low-cost patients within DRGs (‘cream-skimming’)

2. Increase revenue per

patient

a) Change coding practice

improve coding of diagnoses and procedures

fraudulent reclassification of patients, e.g. by adding inexistent

secondary diagnoses (‘up-coding’)

b) Change practice patterns

provide services that lead to reclassification of patients into higher

paying DRGs (‘gaming/overtreatment’)

3. Increase number of

patients

a) Change admission rules

reduce waiting list

admit patients for unnecessary services (‘supplier-induced demand’)

b) Improve reputation of hospital

improve quality of services

focus efforts exclusively on measurable areas

Incentives and (un-)intended strategies

DRG-based case payments, DRG-based budget allocation

(possibly adjusted for outliers, quality etc.)

Excluded costs (e.g. for infrastructure; in U.S. also physician services)

Payments for non-patient care activities (e.g. teaching, research, emergency availability)

Payments for patients not classified into DRG system (e.g. outpatients, day cases, psychiatry, rehabilitation)

Other types of payments for DRG-classified patients (e.g. global budgets, fee-for-service)

Additional payments for specific activities for DRG-classified patients (e.g. expensive drugs, innovations),

possibly listed in DRG catalogues

Scope of DRGs within hospital activities

DRG-based case payments, DRG-based budget allocation

(possibly adjusted for outliers, quality etc.)

Excluded costs (e.g. for infrastructure; in U.S. also physician services)

Payments for non-patient care activities (e.g. teaching, research, emergency availability)

Payments for patients not classified into DRG system (e.g. outpatients, day cases, psychiatry, rehabilitation)

Other types of payments for DRG-classified patients (e.g. global budgets, fee-for-service)

Additional payments for specific activities for DRG-classified patients (e.g. expensive drugs, innovations),

possibly listed in DRG catalogues

DRG payment – the way forward

Separate priority activities not

related to a particular patient

from DRG payments

• Define clinically meaningful

groups (constant updating),

• which are cost-homogeneous

(on average or “best practice”),

• measure quality and

• adjust payment

Pay separate for patient-

related activities which you

want to incentivize (upon prior

authorization, 2nd opinion?)

Integrate all relevant costs and

measure them accurately

19 October 2013 DRGs in Europe - Basics and

implications for care

40

www.eurodrg.eu

7. Establish appropriate provider

organizations

Ultimately the impact of purchasers on health

systems performance will be determined by the way

and the extent to which providers respond to

purchasers incentives

– Increasing provider autonomy (self governing)

– Provider ability/capacity to respond to incentives

– Lines of accountability

– Accepting a new power balance

Conclusions

• Purchasing = central function of health systems

(here to stay!)

• In theory … it ought to work

• In practice … no country has found the holy

grail, many questions remain

• How transferable are experience and results

(“contextualisation”)?

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