Making Reform a Reality

Ways to Facilitate Better Healthcare Payment and Delivery Systems and Lower Healthcare Costs

In this paper, Harold D. Miller of the RWJF-commissioned Center for Healthcare Quality and Payment Reform takes an in-depth look at practical ways to successfully manage the multifaceted implementation challenges inherent with payment reform initiatives, using lessons learned from previous efforts.

From the Report
There is widespread agreement that current methods of paying for health care contribute to both high costs and poor quality. Not only do they create strong incentives to increase the volume of services delivered, current payment methods often create barriers to delivering higher quality and more efficient care and can even penalize health care providers for keeping people healthy, reducing errors and complications, and avoiding unnecessary services.

To date the only broadly implemented changes in payment systems to try and address these issues have been pay-for-performance (P4P) programs. Although P4P programs have encouraged some improvements in quality, most involve relatively small amounts of funding and focus on relatively few care processes. Most importantly, they do not correct the problems in the underlying payment systems, falling short of the reform needed to deliver true change.

Two fundamental types of reforms in payment systems are needed:

Episode-of-Care Payment, i.e., paying a single amount to cover all of the services which are provided to a patient during a single episode of care (e.g., the treatment of a heart attack), rather than making separate payments to hospitals, physicians, and other providers and rather than paying more for services needed to address preventable complications. Episode of Care Payment gives the involved providers an incentive to coordinate their activities, eliminate unnecessary services, and avoid preventable complications.

Comprehensive Care Payment (often called “global payment”), i.e., paying a single amount to cover all of the services needed to manage a patient’s conditions during a fixed period of time, regardless of how many separate episodes of care occur. This gives the providers involved in the patient’s care the flexibility to try innovative approaches and tailor services based on the patient’s needs, and it gives
them an incentive to avoid hospitalizations and unnecessary or overly-expensive services.

Although there is now growing recognition that these kinds of payment reforms are necessary if significant improvements in health care quality and costs are to be achieved, the challenge has become convincing health care providers, payers, purchasers, and consumers that they are feasible and helping them overcome the significant hurdles to implementation. The changes are inherently complex and risky, and the payers, providers, and communities that are interested in pursuing them face many practical challenges in doing so.

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