As both a Canadian and an analyst who focuses on US healthcare, I have an abiding curiosity in comparisons between the US and Canadian systems, so it was with great interest that I read the recent Health Affairs article by Dante Morra and coauthors entitled “US Physician Practices Versus Canadians: Spending Nearly Four Times As Much Money Interacting With Payers”. This article outlined the difference in administrative costs experienced by physicians in America versus those in my home province of Ontario; the authors estimate that Ontario physicians spend only 27 percent of what physicians in the United States pay to interact with payers (or payer in the Canadian case). This is not altogether surprising – intuitively, one contract is easier to administer than many, especially if the contracts have differing parameters – but the authors do an excellent job of quantifying the difference between Canadian and US physicians and discussing its implications.

They also suggest that payment reforms, such as bundled payments and pay for performance, may increase administrative burdens for US physicians in the short run, and they highlight several ways in which administrative burdens can be reduced. As a policy analyst at the Integrated Healthcare Association (IHA), a small Californian organization that works on implementing cross-sector payment reforms, I would like to expand on this discussion with two examples: the first is IHA’s Bundled Episode Payment and Gainsharing Demonstration, which confirms the authors’ statement that payment reform can, in fact, increase administrative costs in the short run. The second is its statewide Pay for Performance Program, which is an example of how using a single quality measurement process can lower physicians’ administrative burdens.

Increasing Short Run Administrative Burdens for Long Run Gains: IHA’s Bundled Episode Payment Pilot

IHA’s Bundled Episode Payment and Gainsharing Demonstration will implement and evaluate the effectiveness of bundled episode of care payments for a set of ten acute procedures, which currently include total knee replacement, cardiac catheterization with stents, and knee arthroscopy with meniscectomy. From an administrative perspective, bundled payments can represent significant, though not insurmountable, problems in the short run. These problems require health plans, hospitals, and physician groups to devote contracting, informatics, and administrative resources to implementation.

On the provider side, hospitals and physician groups must find ways to administer the allocation of a single sum of money, which many of them have never had to do before. On the health plan side, adjudication systems must be programmed to both group individual claims into a bundled price when appropriate, based on potentially complex patient inclusion and exclusion criteria, and avoid double-payment of claims that are billed erroneously. Demonstration participants are beginning to adopt novel software products for episode claims adjudication and payment that are coming on to the market, but there are many administrative issues that must still be addressed.

Despite the challenges, we believe that the potential benefits of bundled payment – increased coordination between providers, shared savings, and enhanced quality – outweigh the short-term administrative hurdles. Devoting the time needed to working these out now will allow us to both find viable solutions to current misaligned methods of payment, and to inform implementation in the rest of the nation as bundled payment becomes more common.

The Center for Medicare and Medicaid Innovation’s recently-announced Bundled Payments for Care Improvement Initiative should also help to focus provider attention on the administrative requirements for accepting and allocating bundled payments, and has the potential to spur the creation of administrative tools and standards which private-sector bundled payment initiatives can then adopt.

Decreasing Administrative Costs Through a Common Measurement Framework: The California Pay for Performance Program

IHA also operates the California Pay for Performance (P4P) Program – the largest non-government physician incentive program in the United States – which covers over 200 physician organizations and eight health plans. This program was born in part out of California’s physician organizations’ frustration at competing measurement and reporting requirements from their many payers, as well as competing public scorecards that presented different, sometimes conflicting, pictures of organizations’ performance. Organizations were concerned that complying with multiple measure sets and methodologies took time away from actual improvement efforts, the ultimate goal of measurement and reporting.

In response to these concerns, the California P4P Program was born in 2001. The Program aggregates data across all health plans involved to produce single performance scores on a uniform set of metrics. Participating providers have embraced the P4P Program, and in an evaluation of the program completed by RAND and UC Berkeley, the majority of providers surveyed cited the alignment of measure sets across plans as “very important,” and it was called “‘IHA’s greatest achievement.’”

Measure alignment will likely become a growing concern as the Affordable Care Act is rolled out, as there are many provisions, such as the Shared Savings Program, that require providers to measure and report quality metrics, and aligning these not only with each other but also with private-sector initiatives will help to lower administrative costs in the long run.

Administrative Simplification and Payment Reform Must Evolve Together in Order to Make Healthcare Sustainable

Morra and coauthors were right in saying that payment reforms can lead to increases in short run administrative costs, but they can also force providers and others to find innovative solutions to these increased costs. Administrative simplification is inseparable from the broader payment reform agenda, and in the long run any new payment systems should simplify the administrative work required of providers, rather than make it more complex and cumbersome. If a reform takes costs out of the system by enhancing efficiency but adds costs through increasing administration, it is not a real reform and does not present a viable solution to the problems faced by the American healthcare system.