Payment Reform in Health Care

Innovation > Payment Reform in Health Care

You won’t hear anyone at the Minnesota Health Action Group argue against the case for payment reform in health care. We have spent more than 25 years advocating for a more rational way to pay for health care services, one that encourages high-quality, low-cost care.

 Who pays for health care in the United States? Many might answer this question by responding insurance companies. But they would be wrong. Insurance companies process the payments on behalf of the real payers of health care — employers, public agencies, and individual people.

Payment reform means moving away from the dominant payment model in the United States — fee-for-service. Fee-for-service is inherently inflationary. Fee-for-service payment offers health care providers a specific amount of compensation in exchange for providing a patient with a specific service (e.g., visits, tests, procedures).

Because care providers can charge a fee for each procedure, the more procedures they perform, the more money they will be paid. In the end, fee-for-service pays for volume, not outcome. In a fee-for-service environment, physicians get paid the same amount for one patient, regardless of whether they provide excellent care or terrible care. In fact, providers may actually be paid more for poor quality due to the need for “rework.”

If fee-for-service is the problem, what is the solution? Health care providers need to be rewarded for providing high-quality, efficient care, resulting in optimal health outcomes through the way they are paid.  Many different payment approaches are currently being tested; they include:

• Pay-for-performance, where providers are offered financial bonuses for strong performance on specific quality measures. Minnesota Bridges to Excellence, managed by the Action Group, is a pay-for-performance program.
• Bundled payments offer reimbursement for all of the services needed by a specific patient for a particular condition. This payment method creates an incentive for provider coordination of efforts. The primary goal is to reduce costs by reducing treatment variation and eliminating gaps in care that can result in mistakes and avoidable complications.
• Total cost of care is where a provider entity agrees to accept responsibility for the health care for a group of patients in exchange for a set amount of money. It is also referred to as global payment, population-based payment, or capitation. The goal is to align the financial incentives of providers with the interests of the patients and heath care purchasers so everyone wins if patients are healthy and costs are kept in check.

Engaging Purchasers in Payment Reform

Payment reform is not an end in itself. It is a means to spark fundamental change in the health care system. In 2012, the Action Group received a grant from the Robert Wood Johnson Foundation to explore what employers currently know about payment reform and how they might more actively work to change how we pay for health care in the United States and in Minnesota.

Although hospitals, physicians, and health plans have begun to reform how care is paid for in Minnesota, employers, public agencies, and individual consumers/patients have a vested interest in learning about the changes taking place, what other options might be considered, and to advocate for an accelerated pace of change in a manner that benefits the real payers. Click here to see presentations from these workshops.