Center for American Progress

September 18, 2012

By Maura Calsyn and Emily Oshima Lee
Our nation’s health care system is high cost and high volume, but it is certainly not high value. This year, we will spend more than $8,000 per person on health care, which is more than twice the average of $3,400 per person in other developed nations. But spending more on health care has not made us healthier. Even within the United States, different areas of the country spend very different amounts on health care, again with no correlation to better outcomes. It is important for residents to have access to the healthcare that they need, there have been some changes that have progressed and helped the sector, for instance, patients can now get their medications online (right here), so they do not have to go through the entire system, but other areas still need to be improved to a good degree. People want to know that they are covered in case something happens to them or someone they love, and if they cannot have that certainty, then they try and make it certain in other areas such as life insurance (check out your URL for more information on this), where they safely know that if anything was to happen to them, their families are covered financially and they do not accrue debt. The healthcare industry is a worry, so targeting the issues head-on is the only way that people are going to feel like they are covered just in case.

One of the key reasons for the high level of health care spending and its rate of growth is the predominance of the fee-for-service payment system, which rewards quantity over quality, especially for high-cost, high-margin services. Under this system, health care insurers, including Medicare and Medicaid, pay doctors, hospitals, and other health care providers separately for different items and services furnished to a patient. As of 2008, 78 percent of employer-sponsored health insurance was fee-for-service. However, in recent years this has slowly started to change for smaller employers and it is predicted that the new normal for small businesses will be level-funded health plans instead. For now, though, fee-for-service is the most popular among bigger organizations.

Fee-for-service payments drive up health care costs and potentially lower the value of care for two main reasons. First, they encourage wasteful use, especially of high-cost items and services. Second, they do nothing to align financial incentives between different providers. As a result, patients receive care that they do not need and may not want, and health care providers may not be on the same page about what type of care the patient should receive. It is not just insurers who bear these unnecessary costs: These costs raise premiums, deductibles, and cost-sharing for all health care consumers.

…Although many of these efforts are in beginning stages, early experiences of health care providers piloting these alternatives to fee-for-service are promising. Their initial experiences and results suggest these reforms can lower costs while increasing quality of care.

This paper examines three promising alternatives to fee-for-service payments:

  • Bundled payments, which are fixed amounts paid to health care providers for a bundle of services or all the care a patient is expected to need during a period of time
  • Patient-centered medical homes, which are redesigned primary care practices that focus more on preventive care, patient education, and care coordination between different health care providers
  • Accountable care organizations, which are groups of health care providers who agree to share responsibility for coordinating lower-cost, higher-quality care for a group of patients

This report does not review every health care reform project underway in our nation, of which there are hundreds. Instead, it compiles and highlights recent data from organizations testing each of these reforms. This report also includes new findings from our conversations with a variety of health care providers and payers who are implementing these reforms. Together, these data and feedback highlight key lessons, strategies for success, and implementation challenges that can help guide the movement away from our current, fragmented payment system to one that is high-value and patient-focused.