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Demystifying Global Payments - Part 2
How Payments and Quality Incentives Are Determined

A simple way to think of global payment is as a fixed budget based on the projected cost of all the care a provider group's patients will receive during a defined period. In order to accept global payment, the group should be able to spread the financial risk of operating with a fixed budget over a large number of patients – perhaps 10,000 or more. Furthermore, global payments should be arrived at in a way that gives the group enough money to provide all the high-quality care its patients need, while also enabling it to hold down cost increases. Ultimately, the structure and amount of global payments and performance incentives are determined through negotiations between each insurer and provider group. Based on our own experience, here's a brief summary of how it's done.

The Building Blocks of Global Payment

The first step in calculating global payments is to look back at several years of patients' actual medical costs using claims payment data. Next, the insurer factors in cost and utilization trends for ambulatory and inpatient care, diagnostic tests, prescription drugs, etc., to estimate what the patients' medical expenses will be during the contract period. Finally, payments are “risk adjusted” each year to account for the health status and likely costs of caring for the provider group's mix of patients (whose individual annual medical expenses may range from zero to hundreds of thousands of dollars or more).

Proper risk adjustment of global payments is an essential safeguard in that it helps to ensure fair and adequate compensation for providers while removing any financial incentive to avoid high-cost patients. Typical risk factors include age, sex and geography, but much more sophisticated predictive tools that account for patients' known medical conditions are now available as well. In a hypothetical example of how this methodology works, the payment for a healthy 25-year-old male might be $150 per month, while the payment for an older patient with a serious chronic condition like congestive heart failure could be in the thousands of dollars.

Once all the calculations are done – and they are far more complex than hinted at here – the insurer and provider group agree upon a global payment amount for the contract period. With multi-year contracts, annual inflation and/or efficiency adjustments may be included as well.*

Rewarding Quality of Care

Adding performance incentives to global payments helps to align the interests of patients and providers around improving outcomes of care and the overall care experience. Scores of widely accepted performance measures are available for assessing both ambulatory and inpatient care, with many more in the works. Generally, they fall into three categories – process measures, outcome measures, and patient experience measures. Examples in each category include:

  • Process: The percentage of patients with diabetes who have their blood sugar (HbA1c) tested at least twice a year
  • Outcome: The percentage of patients with diabetes who keep their HbA1c levels within a specified healthy range
  • Patient Experience: How patients rate the availability of timely appointments, waiting times during visits, and communication with their doctors

There are many ways quality incentives can be structured – provider groups can be rewarded for meeting agreed-upon performance targets, for instance, or for exceeding national or regional benchmarks, or for year-to-year improvements. Similarly, bonus payments for achieving performance goals vary from contract to contract, although there is a trend toward increasing the amount of quality incentives as well as the percentage of payment that is at risk. Ideally, incentives should be based on multiple dimensions of a group's performance and should encourage providers to make long-term investments in improving the way care is delivered.

*There is a common misunderstanding that the provider group receives a lump-sum payment from which it pays all of the expenses related to its patients' care. We'll discuss how the funds actually flow, later in this series.

September 30, 2009

This article is for general information purposes only and is not intended as legal or other professional advice. ©Atrius Health. All Rights Reserved.

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Demystifying Global Payments (Part 1)

Gene Lindsey, MD, President & CEO of Atrius Health, offers his perspective on payment reform.

Marci Sindell
Chief External Affairs Officer
275 Grove Street, Suite 3-300
Newton, MA 02466
Phone: 617-559-8323
Fax: 617-559-8099

Coming up next in Examining Health Care:

How global payments support clinical quality and efficiency.