Perspectives

Unlocking Value in Healthcare through Episode-Based Plans

Executive Summary

Episode-based health benefit plans, such as Oxbridge Health’s Episode Benefit Plans with the Episode Advantage shared savings feature, represent a significant shift from traditional health insurance models. By leveraging bundled payments, price transparency, and consumer incentives, these plans aim to improve cost control, foster consumer engagement, and promote value-based provider competition. This white paper synthesizes academic research and real-world evidence to compare episode-based plans to traditional fee-for-service models, highlighting implications for costs, quality, and market dynamics.

Consumer Engagement and Incentives

Active Consumer Participation

Episode-based plans introduce a shared savings model, where each episode of care (e.g., a surgery or treatment course) has a pre-negotiated bundled price. Patients are given full price transparency and are financially rewarded when they select providers whose costs fall below the set episode price. This direct incentive encourages patients to become active healthcare consumers, a phenomenon well-documented in academic literature as “right-to-shop” or “reference pricing” programs¹.

A study of New Hampshire’s state employee health program, which adopted a shared-savings shopping model, found that 90% of enrollees shopped for care at least once in three years, with two-thirds earning financial rewards for choosing lower-cost providers. The program saved the state approximately $11 million over three years, demonstrating that consumer-facing incentives can drive more informed and cost-conscious behavior¹.

Contrast with Traditional Plans

Traditional health plans, typically based on fixed co-pays and deductibles, insulate patients from the true price of care. This lack of price sensitivity results in little motivation for patients to seek out lower-cost providers, perpetuating inefficiency and high cost variation1. Academic studies confirm that when patients are not exposed to price signals, their choices are less likely to be cost-effective.

Cost Control and Value-Based Choices

Bundled Payments and Predictability

Episode-based plans are a form of value-based insurance design. By bundling all services within an episode for a single price, these plans create cost predictability and align incentives for both payers and patients. Empirical research shows that such models can significantly lower healthcare spending compared to traditional fee-for-service arrangements.

For example, Arkansas’s statewide episode-based payment program for maternity care achieved a 3.8% reduction in spending per episode in its first year, with no increase in complications and slight improvements in some quality measures. These findings are echoed in a systematic review by Navathe et al. (2017), which found that bundled payment programs generally reduce costs without compromising quality.

Behavioral Change and Savings

Oxbridge Health’s internal data suggests that episode-based plans reduce employer healthcare costs by 10–20% before member engagement incentives, with total savings reaching 20–30% when shared savings rewards are included. These outcomes are consistent with broader academic findings that consumer engagement and price transparency can amplify the cost-saving effects of bundled payment models.

Provider Competition and Market Dynamics

Market Effects of Price Transparency

Episode-based models foster competition among providers by setting transparent episode prices and allowing patients to choose any qualified provider. This approach pressures high-cost providers to justify or reduce their prices to attract value-seeking patients¹.

The CalPERS reference pricing program in California is a prominent case study: after introducing reference pricing for surgical procedures, the percentage of patients choosing low- price hospitals increased by 21%, and high-price hospitals saw a 34% drop in patient volume. In response, high-cost providers reduced their prices by over 30%, resulting in millions in savings for both the insurer and patients. Academic evaluations of this program confirm that reference pricing leads to significant reductions in insurer and patient spending, with no adverse impact on quality or outcomes.

Comparison to Traditional Plans

Traditional fee-for-service plans, by contrast, do not incentivize provider price competition. Providers are paid per service, and patients are generally indifferent to cost differences beyond their co-payments. As a result, price variation persists, and there is little pressure for providers to innovate or reduce costs.

Quality of Care and Outcomes

Maintaining or Improving Quality

A common concern with cost-focused models is the potential for reduced quality. However, academic research on episode-based and reference pricing programs finds no evidence of compromised outcomes. Studies report stable or improved complication rates, readmissions, and patient satisfaction under bundled payment models.

For example, the Arkansas episode-based maternity program and the CalPERS reference pricing initiative both maintained or improved quality metrics while achieving substantial cost reductions.

Conclusion

Academic research and real-world evidence support the core premises of Oxbridge Health’s Episode Benefit Plans:

• Consumer incentives and price transparency drive more informed, cost-conscious healthcare decisions, leading to substantial savings.
• Bundled payment models control costs and encourage value-based choices without sacrificing quality.
• Provider competition is enhanced, resulting in market-wide price reductions and efficiency gains.

Compared to traditional health plans, episode-based designs with shared savings foster a culture of cost-awareness and value, aligning the interests of patients, providers, and payers toward high-quality, affordable care.

---

Key Academic References

1. Navathe, A. S., et al. (2017). “Effect of Bundled Payment on Health Care Spending and Quality: A Systematic Review.” JAMA Internal Medicine, 177(2), 263–272.
2. Robinson, J. C., et al. (2015). “Reference Pricing, Consumer Cost-Sharing, and Insurer Spending for Advanced Imaging Tests.” JAMA, 314(6), 612–620.
3. Hussey, P. S., et al. (2012). “Bundled Payment: Effects on Health Care Spending and Quality.” RAND Corporation. Sinaiko, A. D., & Rosenthal, M. B. (2011). “Increased Price Transparency in Health Care-Challenges and Potential Effects.” New England Journal of Medicine, 364(10), 891–894.