Payment Reform and New Models of Care

Research suggests that the most effective way to influence clinical practice is to change the way providers are paid. The fee-for-service system creates an incentive for providers to deliver as many exams, tests, and treatments as possible. However, a greater amount of services does not ensure quality care. Moreover, fee-for-service has been widely cited as a major contributor to relentless cost growth in the U.S. health care system.

As the nation's largest purchaser of health care services, Medicare continues to explore ways to rein in cost growth. The Affordable Care Act (ACA) addresses this issue directly by mandating new demonstration projects to test the effects of innovative approaches to paying for health services and delivering care. These models are intended to improve both quality and efficiency:

  • bundled payments

    A single payment for “bundles” of related services during an episode of care rather than separate payments for each service

    This approach is intended to encourage providers to provide better-coordinated and more efficient care and to eliminate ineffective and unnecessary treatment.

  • value-based purchasing (VBP)

    An incentive-based approach that seeks to hold providers accountable for cost and quality of care by rewarding performance based on selected measures

    Under the ACA, numerous provisions intended to drive improvements in care delivered to Medicare beneficiaries will be implemented and tested.

  • accountable care organizations (ACOs)

    Groups of providers who assume responsibility for meeting quality and cost goals for an assigned patient population

  • patient-centered medical homes

    A system that hinges on each patient having close contact with a primary care clinician for continuing care

    The primary clinician takes the lead when referring the patient to specialists. Patient-centered medical homes represent a promising approach to delivering high-quality, cost-effective care, especially for people with chronic health conditions.

RAND researchers have studied each of these models extensively. RAND analysis helped the Center for Medicare and Medicaid Services (CMS) design a VBP program for hospitals that is now being implemented under the ACA. RAND studies are also evaluating demonstration projects intended to test the effects of these models in a range of settings.