Episodic Payment Drives New Approaches to Obstetrics Care

Read part 1 of this post, C-Sections Emerge as a Cost and Quality Measure: What Is Your Hospital’s Rate?

If your organization is in the labor and delivery business, you’d better fasten your seatbelt—the wheels are already in motion for payment innovation in obstetrics. Across the country, payers are engaging directly with providers in a bid to hold the line on episodic costs while improving care processes. For example, in the private sector, Horizon Blue Cross Blue Shield of New Jersey has developed a bundled payment for obstetrics with the goal of targeting excessive rates of cesarean delivery. Medicaid programs also are getting involved: Arkansas and Tennessee have already deployed bundled payment arrangements for low-risk obstetrical patients with providers exposed to both upside and downside risk.

Childbirth/Pregnancy Is a Prime Target for Payment Innovation
Why is the interest in obstetrics taking off today? We have honed in on 3 reasons relating to childbirth and pregnancy: high volumes, ease of bundling and high variance in cost.

First, childbirth is the most common cause of hospitalization in the US, and more dollars are spent on hospital-based services surrounding childbirth than any other health care–related expense. Consider that in 2010 there were 719 thousand knee replacements and 1 million cardiac catheterizations. By comparison, every year in the US approximately 4 million babies are born, with associated hospital costs in excess of $15 billion. There is no question that deliveries account for a large portion of inpatient discharges and are the number one reason for hospitalization among reproductive-aged women.

Second, several features of pregnancy lead to efficient bundling. Pregnancy is a well-defined episode of care with an unambiguous beginning and endpoint. Moreover, physicians are already paid per obstetrical episode for professional services, suggesting that the transition to a bundled payment model for pregnancy might be less disruptive than a similar transition for other services, such as cardiovascular care or joint replacement.

Finally, episode costs range significantly—wide variation in payer contracting drives dramatic differences in costs. Overutilization of certain high-cost services is another part of the problem. Health care advocacy groups, professional physician organizations and obstetricians themselves all concur that the current c-section delivery rate (32% of all live births in the US in 2015) drives costs while serving little clinical purpose and exposing mothers and babies to potential harm. Similar concerns have been raised regarding the use of other obstetrical services such as ultrasound and induction of labor.

More troubling, the high degree of cost variation persists even in the management of low-risk pregnancies. After discounting for outliers, higher-performing organizations can deliver a low-risk pregnancy incurring half the facility costs of a lower-performing competitor. This suggests that the problem isn’t just utilization—it’s also about unit cost at the facility level.

Episode-Based Payment Can Incent Improved Care, Outcomes
Despite the episodic nature of pregnancy, we have historically seen little movement toward bundled payment for obstetrics. One reason may be the difficulty in determining appropriate exclusions from the bundle while creating opportunities for participating providers to improve care. An ideal payment model would encourage the delivery of optimal obstetrical care. The lowest-hanging fruit will likely be limiting testing and interventions that are low-yield without sacrificing quality of care. More challenging tactics include increasing the vaginal delivery rate and reducing preterm birth (PTB) rate.

Though increasing the vaginal delivery rate is the most obvious target for a bundle, implementation will be challenging. One tactic to do so is by rewarding providers for achieving high rates of vaginal delivery for low-risk nulliparous women (eg, decreasing the nulliparous, term, singleton, vertex [NTSV] c-section rate). Ultimately this could lead to a significant reduction in the overall cesarean delivery rate, but it will require significant cross-team efforts.

Diminishing the PTB rate and limiting the extent of prematurity help limit neonatal intensive care unit utilization. This may be accomplished by incentivizing the identification of women at risk for PTB and facilitating psychosocial intervention and medical therapy, as appropriate. Early identification also will improve outcomes for high-risk patients and encourage providers and hospitals to deliver coordinated care across the entire pregnancy episode.

Establishing clear parameters for an obstetrical episode is requisite for the transition to a payment model that rewards value and benefits stakeholders across the board, including providers, health care organizations, payers and patients.

Consider Key Areas When Designing New Payment Models
In designing novel payment models in tandem with providers and payers, consider the following:

  • Patient Eligibility: Inclusion of low-risk pregnant women (and exclusion of patients with high-risk conditions) makes the population more homogeneous, facilitating risk adjustment and exposing outliers. Authorities in obstetrics such as The American Congress of Obstetricians and Gynecologists and the Society for Maternal-Fetal Medicine have proposed eligibility guidelines that, though different, correlate well with regards to the likelihood of cesarean delivery.
  • Timing: Defining the obstetrical episode broadly (from conception through 60 days following delivery) is most appropriate, as this scope presents the most opportunities for improving care processes and generating cost savings. However, limiting the episode to hospitalization can be an effective means of reducing delivery-associated costs, including limiting the cesarean delivery rate.
  • Providers and Covered Services: Patient eligibility and episode duration have a direct effect on the potential scope of services included in the episode, which may include care for any condition related to pregnancy in the episode, including lab testing, imaging, labor and delivery services, and neonatal care. Carve-outs to prevent underutilization of appropriate services may also be reasonable (eg, anesthesia).
  • Pediatrics Inclusion: Including newborn care in the episode enlarges the opportunity for process improvement, but it requires administrative and clinical coordination of a greater number of providers to achieve savings. There also is risk associated with including neonatology services. Organizations should carefully weigh the additional complexity of coordination, cost tracking and relationships with pediatrics providers against the potential cost savings.

Additional considerations include ensuring adequate risk adjustment; implementing systems for quality measurement; designing thresholds for stop-loss; and pricing design that encourages cost-effectiveness within the confines of local norms and prevailing patterns of care.

What Is the Health System’s Role in Bundled Payment?
The transition to episode-based payment requires the designation of an accountable entity, a quarterback for the episode that can advocate for change and accepts risk for care decisions. In most cases, physicians and other providers (eg, CNMs, NPs) are the likely choices.

Where does this leave your organization? Although physicians may be in the driver’s seat, the hospital and health care organization also need to be involved, for several reasons. Perhaps most obvious is that obstetrician/gynecologists are increasingly employed by hospitals and health systems, which sets a strong context for aligned interests. More importantly, though, physicians who are working under risk-based payment models for obstetrical care are incentivized to develop cost-effective, high-quality care processes, whether or not those physicians are employed. In order for this to happen, physicians may need administrative support and access to organizational data infrastructure; some measure of reciprocal cost-transparency and data sharing is also essential.

Movement toward payment arrangements that broaden the scope of risk for organizations and providers who deliver obstetrical services is logical to the point of inevitability. This shift will demand that stakeholders recognize what drives cost across the pregnancy episode and which elements of care are indispensable from a quality perspective.

Begin Preparing for Bundled Payment Today
Key steps in preparing for the transition to bundled payment include the following:

    • Know your partners.
      • Identify and engage physician and nursing leadership. Recognize that your physicians may already be having conversations with payers regarding alternative payment models. In addition, nursing efficiency and culture not only affect duration of labor, which bears on organizational costs, but can influence the cesarean delivery rate. Changing the culture for obstetrics, where practice patterns are very much on display, requires buy-in from the rank and file.
      • Evaluate your payer relationships. Are you and your providers able to explore deployment of a novel payment arrangement through a commercial payer? Is Medicaid addressing payment for obstetrics in your state, in which case participation—and cost control—will be mandatory? Are there self-insured employers looking to build loyalty relationships with your organization? Consider all potential payer partners, and determine which relationships may benefit from entering into a bundled arrangement.
    • Understand your cost drivers. Work with payers and providers across the entire pregnancy episode to pinpoint opportunities to reduce cost. To what extent are costs driven by utilization patterns (eg, cesarean section rates) vs cost per unit of service?
    • Develop quality metrics for the pregnancy episode in tandem with providers and payers. Episode success cannot be achieved by driving down cost at the expense of high-quality care.
    • Be innovative. In order to change physician behavior patterns (and associated costs) it may be necessary to break away from existing care models. Consider the benefits of deploying new models (eg, group visits for antepartum visits; employment of certified nurse midwives in a clinic setting or in the hospital; a laborist model).

Sg2 Manager Karyl Kopaskie, PhD, contributed to this post.

Sources: National Center for Health Statistics. FastStats Homepage: Inpatient Surgery. Updated July 6, 2016; Torio CM and Andrews RM. National Inpatient Hospital Costs: The Most Expensive Conditions by Payer, 2011. Statistical Brief #160. Healthcare Cost and Utilization Project (HCUP). August 2013; Moore JE et al. Complicating Conditions Associated With Childbirth, by Delivery Method and Payer, 2011. Statistical Brief #173. HCUP. May 2014; Kaiser Health News. If you want to spend a bundle on your bundle of joy, go to Northern California. Accessed June 2016; Hamilton BE et al. Natl Vital Stat Rep. 2016;65(3):1–15; Xu X et al. Health Aff (Millwood). 2015;34:1212–1219.

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