IHP 620 Module 8 Milestone Three Example

Milestone Three: Paying Providers for Value in Granite Peak's Employee Plan

[Student Name]

Southern New Hampshire University

IHP 620: Economic Principles of Healthcare

Module Eight Milestone Three

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

Milestone Three: Paying Providers for Value in Granite Peak's Employee Plan

Milestones One and Two showed that Granite Peak's employee plan costs are driven mostly by prices at outside facilities and by specialty drugs, and proposed benefit designs that change what employees pay. This milestone turns to the other side of the market: how the plan pays the providers who care for its members, and whether new payment models could reward value rather than volume.

How Payment Shapes Incentives

Under fee-for-service, providers are paid for each visit, test and procedure, so more services mean more revenue, whether or not they improve health. Alternative models shift some financial risk to providers. Shared savings arrangements let providers keep part of any reduction in spending below a benchmark if quality targets are met. Global budgets pay a fixed amount per member for a defined set of services, with providers keeping savings or absorbing losses. Bundled payments fix a single price covering everything from surgery through recovery for one course of treatment, a knee replacement for example. Each model changes what providers gain from doing more or doing less.

Evidence on Accountable Care

McWilliams et al. (2016) evaluated early performance of accountable care organizations in Medicare's Shared Savings Program. Organizations that entered in 2012 achieved modest reductions in spending relative to local trends, which grew over their first years, while those entering later showed smaller early effects. Quality measures were maintained or improved. Savings were larger among physician-group organizations than among those led by hospitals, suggesting that groups without hospital revenue at stake had stronger reasons to reduce costly services.

Evidence From a Commercial Contract

Song et al. (2011) studied the first year of a Massachusetts insurer's Alternative Quality Contract, which paid provider groups a global budget with bonuses for quality. Compared with a control group, spending growth was lower, driven largely by shifting outpatient procedures, imaging and tests to lower-priced facilities, and quality of chronic care management and preventive care improved. Because this was a commercial contract with employer-sponsored members, it is especially relevant to Granite Peak's plan.

Evidence on Bundled Payments

Joynt Maddox et al. (2018) evaluated Medicare's voluntary bundled payment initiative for common medical conditions, such as heart failure and pneumonia. Hospitals that participated did not achieve significant reductions in total episode spending, and quality measures did not change significantly. The authors noted that medical episodes are harder to standardize than planned surgical ones, where bundles have shown more promise, partly by reducing use of institutional post-acute care.

Applying the Evidence to Granite Peak

Granite Peak's plan is unusual because the system is both the employer and a major provider. About 62% of plan spending goes to Granite Peak's own facilities at internal rates, and 38% to outside providers. That creates two separate questions: how to pay the system's own primary care network for employees' care, and how to pay outside providers for services Granite Peak does not offer or where employees go elsewhere.

Option One: Shared Savings for Primary Care

The plan could attribute employees to Granite Peak's primary care practices and set a spending benchmark based on the past three years, adjusted for risk and trend. If total spending for attributed members falls below the benchmark and quality targets are met, practices would share half the savings, used for care management staff and bonuses. Like the arrangements McWilliams and colleagues studied, this would reward practices for steering imaging and procedures to lower-priced settings and managing chronic disease well.

Option Two: A Bundled Contract for Joint Replacement

Joint replacement is a planned surgical episode with predictable components, the kind of care where bundles have worked better than for medical conditions. The plan could negotiate a single price with a high-quality outside orthopedic center covering surgery, implant, hospital stay and ninety days of follow-up, with a warranty covering complications. Employees choosing the center would pay nothing out of pocket, combining the bundle with the reference pricing proposed in Milestone Two.

Option Three: A Global Budget

A full global budget for all employee care would give Granite Peak's clinical enterprise the strongest incentive to manage total cost, as in the Alternative Quality Contract. But because the system is paying itself, the financial risk would largely move between internal departments, and the system lacks the actuarial infrastructure to manage a full budget. This option is better considered after experience with shared savings.

Comparing the Options

The table summarizes the options. Shared savings and a surgical bundle are feasible now, supported by evidence and aimed at the plan's cost drivers; a global budget is a possible next step.

Table 1. Payment Options for the Employee Plan

Note. Composite estimates for Granite Peak's plan.

Safeguards

Payment models that reward lower spending can tempt providers to skimp on care or avoid sicker patients. The contracts will include risk adjustment, quality gates that must be met before any savings are shared, monitoring of access and patient experience and a review of any shift in which employees are attributed to which practices.

Measures

The plan will track total cost per attributed member, imaging and procedure use at outside facilities, joint replacement episode cost and complications, quality measures for diabetes and hypertension and employee satisfaction with access. Results will be reviewed quarterly by the benefits committee. An independent actuary will review the benchmark each year so neither the plan nor the practices can shift it in their own favor.

Conclusion

Evidence suggests shared savings produce modest, growing savings with maintained quality, commercial global budgets can slow spending by moving care to lower-priced settings and bundles work better for planned surgery than medical conditions. For Granite Peak, a shared-savings arrangement with its primary care network and a bundled joint replacement contract are the most promising first steps. Both can begin within a year and build the experience needed before any larger step.

References

Joynt Maddox, K. E., Orav, E. J., Zheng, J., & Epstein, A. M. (2018). Evaluation of Medicare's bundled payments initiative for medical conditions. New England Journal of Medicine, 379(3), 260-269. https://doi.org/10.1056/NEJMsa1801569

McWilliams, J. M., Hatfield, L. A., Chernew, M. E., Landon, B. E., & Schwartz, A. L. (2016). Early performance of accountable care organizations in Medicare. New England Journal of Medicine, 374(24), 2357-2366. https://doi.org/10.1056/NEJMsa1600142

Song, Z., Safran, D. G., Landon, B. E., He, Y., Ellis, R. P., Mechanic, R. E., Day, M. P., & Chernew, M. E. (2011). Health care spending and quality in year 1 of the alternative quality contract. New England Journal of Medicine, 365(10), 909-918. https://doi.org/10.1056/NEJMsa1101416