Changing The Incentives Through Payment Reform

There’s broad agreement that the fee-for-service paymentsystem that dominates U.S. health care should be altered—toprovide fewer incentives for volume and better incentives forcost-effective care. Yet there’s little consensus on proposedchanges. The following papers examine some alternatives: a fewthat are already being tried, such as pay-for-performance (P4P)schemes, and others that may be incorporated into state or nationalhealth reforms. Clearly, politically and technically, it willbe difficult to craft a "Goldilocks" compromise—not toostrict, not too loose, but somehow just right.

At one extreme are proposals to shift from fee-for-service inthe direction of capitation—fixed per person annual paymentsthat were once the underpinning of much of "managed" care. Massachusettsmay now go that direction, writes Martha Bebinger in Reportfrom the Field. She describes how a special state commissionhas grappled with constraining health spending as the statemoves toward universal coverage. The panel’s recommendationsfor a new system of "global payments" are based in part on onesuccessful experiment within the state. Yet there’s broadconcern about the potential impact on the state that is a meccafor high-end health care.

Another approach that could produce more cost-effective carecould be "episode-based" payment, in which some or all servicesrelated to a patient’s medical condition would be groupedtogether and paid for in a bundle. The U.S. House of Representatives’health reform legislation proposes testing out the approach.Peter Hussey and colleagues salute that, but they point to majorissues that will have to be addressed—such as how to decidewhat constitutes an "episode" and how to figure out which providersto hold accountable. Harold Miller suggests another modification:"comprehensive care payments" to cover all health care servicesfor a patient for a specific period of time, but adjusted basedon how many conditions a patient has.

In the end, write Hoangmai Pham and colleagues, the best ideamay be to buttress Medicare’s ability to make future changes.Echoing ideas in current health reform proposals, they proposecreating a new governance structure for Medicare to strengthenits ability to make changes without political interference.

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Changing The Incentives Through Payment Reform