Monday, April 9, 2012

Fee-per-service Vs bundled payments

One of the biggest challenges with cost-control in health insurance is with the payment model for health services delivery.

The prevailing fee-per-service model disaggregates services into doctor consultation, diagnostic services, and surgical treatments. Individual payments are made accordingly for each service. This naturally distorts incentives, in so far as it encourages each service provider to over-diagnose or over-treat, so as to maximize their revenues. Since many doctors also have their own diagnostic equipments, it is natural for them to prescribe the full range of diagnostic tests.

In contrast, in countries like India, treatment of a medical condition is the basis for insurance payments. In other words, payments are bundled into a package and the insurer makes the payment to the service provider. The service provider is generally a hospital which either has all these facilities in-house or has a contract with various other external service providers for delivery of integrated services for that particular treatment. This is a much more desirable model since it mitigates and eliminates many of the incentive distortions associated with fee-per-service models.

However, a more ideal payment model for insurers would be diagnosis based bundled payment. A typical diagnosis can have multiple treatment options, based on prior medical history, clinical judgement of the doctors, and so on. This has the potential to create incentive distortions, in so far as it can encourage doctors to prescribe surgery and other invasive treatment intensive treatment regimes where they stand to benefit. A diagnosis based payment model, wherein all treatments in a Diagnosis Related Group (DRG) are covered by a flat fee, can align the incentives of all sides to optimize among treatment alternatives.

Interestingly, the bundled payment regime in India, followed by many state and private insurance programs in the country, is a consequence of the nature of the Indian health care market. In US, Canada, and especially Western Europe, individual medical practitioners and diagnostic testing centers maintain their separate identitities from clinics and hospitals, thereby forcing insurers to deal with them separately. However, in India, the larger integrated specialty hospitals have come to dominate the formal health care market. Insurers therefore deal with them directly or with hospitals who in turn contract with certain diagnostic testing centers and specialists elsewhere. Bundled payments therefore become possible.  

Any universal health insurance scheme for India should have bundled payments as one of its pillars.

1 comment:

Market Research said...

Your blog is good source of information as well as helpful for my Indian Diagnostic Services Market Research and Development.