An episode of care refers to all the treatments and services related to the treatment of a condition. For acute conditions (such as a concussion or a bone fracture), the episode refers to all treatment and services from the onset of the condition to its resolution. For chronic conditions, the episode refers to all services and treatments received over a given period of time, commonly one year. Some payment reform proposals include basing payment on episodes of care, rather than on each service rendered. The intent is to increase the accountability of the provider for the care of the patient. The Accountable Care Act calls for pilot programs to test this method of payment reform in Medicare and Medicaid.
Gillian I. Russell, Terminology, in FUNDAMENTALS OF HEALTH LAW 1, 14 (American Health Lawyers Association 5th ed., 2011).
In order to avoid disputes, a reliable method must be developed for identifying the beginning of a covered episode. One key difference between capitation and episodic reimbursement is that in capitation the provider accepts the risk of both frequency (incidence) and severity (acuity). In episodic reimbursement, the health plan retains incidence risk but passes on the severity of risk. The importance of identifying a covered episode is evident given the distribution of risk.
“Identification” is the contractually designated point at which the covered person leaves the existing reimbursement system (fee-for-service or passive capitation) and enters the episodic reimbursement system (active capitation or episodic payment). The carve-out needs clear identification to implement its clinical and management programs. The patient will benefit from a precisely defined identification for scheduling appointments, bypassing prior gatekeepers, and improving patient satisfaction and education. A clear identification date will also help resolve issues such as billing for diagnostic tests immediately prior to the beginning of a DRG.
Excerpt from M. Kevin Outterson et al., Disease Management & Gainsharing: The Next Generation of Man, American Health Lawyers Association Expert Series 1, 13.