The distribution of variability in costs depends on whether you’re focusing on patients or episodes of care. Within a population, patients with rare or complex conditions drive the variability in the tail of the cost distribution — the variability is patient-dependent. By contrast, for medical and surgical episodes of care, the occurrence of potentially avoidable complications (PACs) drives most of the variability in cost — the variability is PAC-dependent.
This slide depicts cost variability for several hundred individual episodes of cataract surgery, each represented by a tick mark on the graph and documented by a commercial payer from January 2013 through December 2014. As the graph shows, most high-cost cases are those characterized by PACs, not those that have typical surgical outcomes.
These data point to the potential value of alternative payment models, such as bundles. Bundling payments gives physicians a greater incentive to reduce avoidable complications because it makes them financially responsible for the costs of those complications. In effect, lopping off the tail (the high end) of the episode-of-care distribution can lower costs and improve quality.