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Putting Providers At-Risk through Capitation or Shared Savings: How Strong are Incentives for Upcoding and Treatment

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Alternative payment models impact healthcare delivery. While upcoding effects on severity were small, service use significantly increased with higher payments, highlighting the need for policy awareness.

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Area of Science:

  • Health economics
  • Healthcare policy
  • Health services research

Background:

  • Alternative payment models (APMs) like Accountable Care Organizations and capitation alter provider incentives compared to fee-for-service.
  • Existing upcoding literature primarily focuses on avoiding penalties, not on downstream effects on service provision.
  • A theoretical gap exists in understanding upcoding within capitated, case-rate, and shared savings payment systems, especially concerning quality benchmarks.

Purpose of the Study:

  • To develop a novel theoretical model of upcoding applicable to various APMs, incorporating downstream impacts on service requirements.
  • To empirically test the model's implications on severity determination and service utilization changes in response to payment adjustments.
  • To analyze the relationship between payment levels and service provision in a publicly funded mental health system.

Main Methods:

  • Developed a theoretical model of upcoding considering service provision requirements.
  • Utilized conditional logit regressions to model provider-assigned severity categories based on risk-adjusted capitated payments.
  • Employed negative binomial models to analyze monthly service day counts in relation to payment changes.

Main Results:

  • Severity determination showed a weak association with payment rates, indicating minimal upcoding effects on diagnostic assignment.
  • Service utilization, specifically the number of service days, demonstrated a significant association with payment levels.
  • The association between payment levels and service days was significant in the initial period, potentially at a clinically relevant level.

Conclusions:

  • Findings align with theoretical predictions for public sector agencies where profit motives are less pronounced.
  • Observed upcoding was minimal and may have decreased with provider experience; however, service use changes warrant attention.
  • Decreased outpatient service use linked to lower rates could paradoxically increase inpatient utilization and costs over time.