In a blog two weeks ago, we sketched out a multi-part agenda addressing what Community Catalyst believes are the key areas on which consumer advocates should focus in the midst of the current changes in the organization of health services. This week and in the weeks ahead, we will take a little closer look at each element of that agenda, starting with payment reform.

As consumer advocates approach the topic of payment reform we should bear in mind the following adages:

“Every system is perfectly designed to achieve exactly the results it gets.”

            –Don Berwick, founder of the Institute for Healthcare Improvement and former administrator of the Center for Medicare and Medicaid Services (CMS)

“Insanity: doing the same thing over and over again and expecting different results”

            –Albert Einstein, Nobel prize-winning physicist, philosopher and humanitarian

“You get what you pay for.”


In other words, if we want different results from our health care system, we have to change the way we pay for health care goods and services.

The development of a pro-consumer agenda on payment reform requires us to look at the issue from three distinct points of view: What is that we are trying to achieve? What is it that we are worried about? What are the available opportunities to move the system forward?

What are we trying to achieve through payment reform?

The goal of consumer advocacy around payment should be to maximize the potential benefits of    new payment approaches while minimizing the downside risks. At the same time, consumer groups are not operating in a vacuum. The best way to enter into the debate will be to identify promising opportunities as they unfold in the states, as well as in Washington.

To maximize the benefits of payment reform we should identify and seek to rectify the key weaknesses in the current financing system that relies mainly on fee-for-service (FFS) reimbursement. (Note, this continues to be true notwithstanding the spread of “managed care,” since most providers continue to be paid substantially on a fee-for-service basis.)

Those weaknesses are:

  • Too much focus on treatment of discreet episodes of acute illness without adequate attention to management of increasingly prevalent chronic conditions and disabilities
  • Unequal treatment and outcomes for low-income populations, racial and ethnic minorities and other historically marginalized groups
  • High levels of spending on health care services relative to other advanced industrial countries without a concomitant improvement in outcomes 

What are we concerned about?

Reversing the financial incentives inherent in FFS does not automatically bring about the results we are seeking. Ironically, the very populations who have the most to gain from a shift away from FFS also have a lot to lose if financial incentives are not carefully constructed. That’s because it may be easier for provider systems subject to cost and quality targets to meet those goals by avoiding or under-serving high need/high cost patients rather than by reengineering care processes.

What is the opportunity?

The ACA accelerated a movement to payment reform that was already underway prior to passage. Through the creation and funding of the Center for Medicare and Medicaid Innovation, CMS has been testing new models of payment and care delivery. More recently, HHS has adopted a goal of shifting 90 percent of Medicare FFS payments “from volume to value” by the end of 2018. This emphasis on payment reform is turning Medicare into an engine of reform. Other initiatives, including the State Innovation Model grants (SIM) and Medicaid Delivery System Reform Incentive Payment (DSRIP) waivers are increasingly bringing states into the act. Changes in how Medicare pays physicians, adopted as part of the legislation replacing the Medicare Sustainable Growth Rate formula, are likely to add yet more momentum to the shift because under the new formula, physicians’ ability to get pay increases will be directly tied to their participation in “Alternative Payment Models” that are accepting financial risk.

Toward a pro-consumer agenda

Relatively speaking, altering the incentives of FFS is the easy part. HHS has identified a continuum of payment reforms starting with enhanced payments for care-coordination at one end of the spectrum, and proceeding to creating fully capitated integrated delivery systems responsible for a defined population of patients.

Making sure that new financial incentives achieve their intended purpose is much more challenging. To realize the benefits of payment reform, we must do three key things:

First, we must tie financial incentives directly to improvements in outcomes with particular focus on improving care for high-need/high-cost populations, reducing health disparities and adjusting payments to recognize the greater needs in low-income communities. The failure to recognize that caring for low-income groups presents challenges not fully captured in clinical risk adjustment methods is more likely to undermine the delivery system for disadvantaged groups than it is to improve it. This problem has been observed in the operation of Medicare’s Readmission Reduction Program (and CMS has recently acknowledged that its system of risk-adjustment was underpaying Medicare Advantage plans with a high proportion of enrollees eligible for both Medicare and Medicaid).

Second, we must also capture a portion of current spending on medical care and redirect those resources to address the social determinants of health. Mechanisms for achieving this include hospital community benefits programs, assessment on payers or providers such as the Prevention and Wellness Trust Fund in Massachusetts, or engaging communities in allocating a portion of any shared savings realized by the health care system to meet needs the community itself identifies.

Finally, we cannot ignore excessively high prices. With respect to aggregate system savings, the shift along the spectrum toward capitation will reduce the incentive to boost the overall volume of services, but high unit prices will remain a significant issue that require consumer activism. Two places in particular merit close attention from consumer advocates because the prices paid in the US outstrip payments in other countries. One of these areas is prescription drugs where US consumers pay more than people in other countries for the very same product. Another is hospital outpatient charges. This has become a significant problem as the volume of outpatient services has increased, particularly as hospitals continue to acquire physician practices.

There is a lot of momentum behind payment reform. Because the current arrangements lead to excessive cost relative to outcomes and fail to meet the needs of the most vulnerable populations, consumers should welcome rather than seek to obstruct this shift. At the same time, vigorous consumer advocacy is urgently needed to ensure that the benefits of payment reform are realized and the pitfalls avoided.

Obviously much more detail is needed in order to create an actionable policy agenda. But for now it is important to emphasize that while changing financial incentives are necessary, they alone cannot do the work of positive system transformation. Changes in payment must be accompanied by:

  • structural changes to promote team-based care
  • meaningful consumer engagement
  • better, more person-centered and outcomes-based quality measurement
  • robust consumer-protections, including support for complaint resolution and easy-to-navigate appeal rights to guard against under-service, and
  • proactive efforts to advance health equity such as expanding data collection and promoting a culturally competent workforce.   

These topics will be taken up in future blogs.