Episode-based payment: evaluating the impact on chronic conditions

Thomas J. O'Byrne, Nilay D. Shah, Douglas Wood, Robert E. Nesse, Patrick J.F. Killinger, William J. Litchy, Robert J. Stroebel, Amy E. Wagie, James M. Naessens

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


BACKGROUND: Policy makers are interested in aggregating fee-for-service reimbursement into episode-based bundle payments, hoping it will lead to greater efficiency in the provision of care. The focus of bundled payment initiatives has been upon surgical or discrete procedures. Relatively little is known about calculating and implementing episode-based payments for chronic conditions.

OBJECTIVE: Compare the differences in two different episode-creation algorithms for two common chronic conditions: diabetes and coronary artery disease (CAD).

STUDY DESIGN: We conducted a retrospective evaluation using enrollees with continuous coverage in a self-funded plan from 2003 to 2006, meeting Healthcare Effectiveness Data and Information Set (HEDIS) criteria for diabetes or CAD. For each condition, an annual episode-based payment was assessed using two algorithms: Episode Treatment Groups (ETGs) and the Prometheus model.

PRINCIPAL FINDINGS: We began with 1,580 diabetes patients with a 4-year total payment mean of $67,280. ETGs identified 1,447 (92%) as having diabetes with 4-year episode-based mean payments of $12,731; while the Prometheus model identified 1,512 (96%) as having diabetes, but included only 1,195 of them in the Prometheus model with mean diabetes payments of $23,250. Beginning with 1,644 CAD patients with a 4-year total payment mean of $65,661, ETGs identified 983 patients (60%) with a 4-year episode-based mean of $24,362. The Prometheus model identified 1,135 (69%) as CAD patients with 948 CAD patients having a mean of $26,536.

CONCLUSIONS: The two episode-based methods identify different patients with these two chronic conditions. In addition, there are significant differences in the episode-based payment estimates for diabetes, but similar estimates for CAD. Implementing episode-based payments for chronic conditions is challenging, and thoughtful discussions are needed to determine appropriate payments.

Original languageEnglish (US)
JournalMedicare & medicaid research review
Issue number3
StatePublished - 2013


  • Bundled Payments
  • Chronic Disease
  • Episodes
  • Relevant Services

ASJC Scopus subject areas

  • Health Policy


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