Beyond Widgets: The Pursuit of Payment Reform

In a normal market-based economic model, rational actors respond to incentives. Competition raises quality and lowers costs. Innovations can be disruptive to market participants but usually act to improve the product or service for consumers. Prices fall, value rises, and the economy expands or contracts based on what the market demands. Most functioning industries follow this path.

Health care in the United States is a notable exception. Costs remain stubbornly high, and quality remains lower than it should be. Consumers generally do not or cannot choose value. Providers, not consumers, usually drive demand for health care services. Employers and other purchasers of care should be able to exercise buying power to obtain better value, but often that power is limited—to employers’ great frustration.

The health care system ultimately is volume-driven: more procedures equals more payment. This volume-based, “fee-for-service” approach is commonly derided within the field as “paying for widgets,” because it treats health care as a collection of commodities bought and sold rather than as an endeavor focused on improving the health of individuals and populations.

This brief explores models for payment reform, national developments and what some communities are doing to pilot payment reform initiatives.

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