Integrating Patient Incentives with Episode-Based Payment

To rein in cost, payers are exploring bundled payment, which aggregates fees for a range of services into a single prospective payment. While under bundled payment providers would have incentives to reduce cost, they might also withhold more expensive care that patients prefer. We explore how bundled payment could be aligned with a benefit design that would encourage patients’ consideration of cost without jeopardizing access to the most expensive treatments. Least-costly-alternative approaches allow patient choice but might deter patients from choosing more expensive care by exposing them to potentially large out-of-pocket payments. A novel “shared-savings supplement” would reward patients for choosing the least costly alternative with a supplemental cash disbursement and thus allow them to share in any cost savings. This cash incentive for the least-costly-alternative allows a reduction of the out-of-pocket payment for the expensive alternative. Thus, patients would still have the option of the more expensive therapy while facing only a modest out-of-pocket cost. Such benefit modifications could be aligned with bundled payment by splitting the responsibility for the incremental cost of more expensive care between patients and their providers.