New England Journal of Medicine Publishes New Paper on Episode-based Payment for Medical Services

August 24, 2011

Waltham, MA – “Opportunities and Challenges for Episode-Based Payment,” an article by Robert Mechanic, senior fellow at Brandeis University’s Heller School for Social Policy and Management and executive director of the Health Industry Forum, will be published online by the New England Journal of Medicine on Wednesday, August 24, 2011. The paper examines the potential benefits of episode-based payment—an approach that bundles reimbursement for medical services delivered during defined episodes of care. These systems bundle payments for hospital, physician, post-acute, and home care over defined periods (i.e. 30 days) into a single episode of care payment.

Episode-based payment is one of several new health care payment reforms that are contained in the Affordable Care Act of 2010. In this Perspective article, Mechanic argues that private payers and the federal government should rapidly develop pilot programs to test different strategies for implementing episode-based payments that could work for health care providers at varying levels of readiness for payment reform. “The objective is to create incentives for efficiency and better care coordination,” writes Mechanic, “but episode-based payment is more complex to administer than fee-for-service or capitation and faces important implementation challenges.”

According to Mechanic, episode-based payment offers some important advantages over approaches like capitation that are designed to control the total cost of care for defined patient populations. For example, episode-based payment:

  • enables provider groups that are not ready for capitation to move gradually into bundled payments on a service-by-service basis.
  • establishes accountability at the level of the individual patient rather than at the population level.
  • can (and should) be designed around evidence-based treatment guidelines in order to improve quality as well as efficiency.
  • creates incentives for organizations to develop more integrated clinical service lines.

To overcome the administrative barriers that have slowed market penetration of episode payment, Mechanic recommends that private payers and federal agencies invest in developing consistent standards for constructing episode payment programs and in better technologies to automate the bundling of medical claims into episode payments.

Mechanic says, “The recent focus on Accountable Care Organizations (ACOs) and Medicare’s Shared Savings Program has drawn attention away from the many other promising payment reform opportunities in the Affordable Care Act. Physicians and hospitals that aren’t ready to join an ACO but want a financial model that supports integrated care, should consider episode payment.”


Robert Mechanic, MBA, is a senior fellow at the Heller School of Social Policy and Management at Brandeis University and the executive director of the Health Industry Forum. His research is focused on payment policy and innovations in organization, delivery, and financing of health care services. He recently coauthored an analysis of four major approaches to payment reform and served on a project team that evaluated one of the nation’s largest new private payment reform efforts. His work has been published in professional journals such as the New England Journal of Medicine, JAMA, and Health Affairs.

The Health Industry Forum (www. brings together a diverse group
of leaders from across the health care field to develop practical, actionable, market-oriented strategies to improve the quality and value of the U.S. healthcare system. To support this mission, the Forum sponsors independent, objective policy analysis and provides various venues where health care leaders and other stakeholders work together to develop strategies and solutions.

Read Mechanic's New England Journal of Medicine article

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The Heller School welcomes media inquiries on this and all other news items. Email Ellen Grody or call 781-736-3903.

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