Blog Home


Payment Reform: Progress And Lessons Learned

September 12th, 2013
by Suzanne Delbanco

When Catalyst for Payment Reform (CPR) released its first-ever National Scorecard on Payment Reform last March, we faced some tough questions.  The Scorecard revealed that just about 11 percent of payments to doctors and hospitals in this country are value-oriented, while the rest remain largely fee-for-service.  CPR — a nationwide nonprofit organization led by employers and other health care purchasers committed to advancing payment reform — has an explicit goal of making 20 percent of payments tied to value by 2020.

So does 11 percent represent exciting progress?  Is the 2020 goal under-ambitious?

In the three years since its inception, CPR has learned first that not all payment reforms are created equal and no one approach suits every market and situation.  A deeper look into our Scorecard figures reveals that among the 11 percent of payments meeting the definition of value-oriented (supporting or reflecting quality), just 57 percent present both an upside and downside financial risk for providers.  The rest — with upside potential only — may be starting in the right place but lack strong financial consequences for providers if they fail to deliver value.  If the payment reform we’re counting doesn’t change provider behavior in a meaningful way and doesn’t lead to higher quality care, we could achieve our 20 percent by 2020 goal, but fail in our mission.

Second, we have learned that when it comes to payment reform, there is no magic bullet.  Employers are always looking for the “it thing,” the new and exciting strategy that is going to bend their spend trend significantly.  Is it the patient-centered medical home?  Bundled payment?  Global payment?  More pay for performance?  The truth is that there are many ways to advance payment reform, and the right solution is highly dependent on the dynamics of a specific health care marketplace and employee population.  This is something CPR has learned by conducting its Market Assessments, looking at the characteristics of particular geographic markets.

A database of payment reform programs.  It is also something about which we are hoping to learn more using our new National Compendium on Payment Reform, a searchable sortable website featuring various payment reform programs and pilots underway across the country.  Entries in the Compendium are added voluntarily to the website by program “sponsors,” which are typically health plans and provider groups.  A visitor to the site can search using many filters, such as: payment reform programs by name; region; type of reform; benefit design; provider type; performance measures; and evaluation.

To date, entries include examples of everything from ACOs to bundled payment pilots to pay for performance programs. So far, sponsors have been curiously shy about participating; to date the Compendium contains about three dozen entries.  However, continuing to build this knowledge base is critical and provides an important resource for policymakers, employers, plans and providers searching for models to emulate, as well as for journalists and researchers.

Employer and plans in a “steady slog” together.  Third, despite all the industry talk about direct contracting, health plans remain our staunch partners in this effort and a critical ally for the long haul.  CPR’s purchaser members meet quarterly with the leading national plans — Aetna, UnitedHealthcare and Wellpoint — to measure and discuss progress.  These plans have risen to the challenge, engaging in in-depth, complex dialogue with employers about what is working, where the barriers remain, and how to assess progress.

It hasn’t been an easy road and these questions, like how best to measure ROI, represent a complex new science.  CPR recently lost Cigna as a partner in this dialogue, due to what they cited as the heavy workload and commitment required.  Indeed there is no magic bullet, just a steady slog, with employers and plans working together, assessing what works, how we can measure it, and openly discussing the opportunities and challenges.

We have seen glimmers of hope from our health plan partners who have worked with providers and large employers to innovate and assess what works to improve value.  These innovative models are diverse and far ranging.  The plans shared details about these models and others, including the mechanics and results, with CPR’s members and other employers this summer during a webinar series on payment innovation in California. For example, in California Aetna’s Accountable Care Solutions teamed up with Sharp Community Medical Group (SCMG) to evaluate options for providing the HMO care management model to its PPO patients. The two organizations established a new ACO which allows SCMG to leverage its exceptional care management processes to benefit a broader percentage of their patient population.

UnitedHealthcare has a bundled payment and performance-based contracting program for ambulatory surgery centers in California.  The model is yielding better health outcomes for patients and real savings.  To address a five-fold variation in price for hip and knee replacements, Anthem Blue Cross in California worked with the California Public Employee Retiree System (CalPERS) to develop a reference pricing program that saved $5.5 million over two years. The innovative program helped guide CalPERS members in need of hip or knee replacement to hospitals that met certain quality standards and priced the procedures at or below $30,000.

The path from here.  So we know there are several different ways to change how we pay for care, that the better paths forward probably involve both upside and downside risk for providers, and that plans remain our partners in this journey.  But what comes next?  For CPR, it is rigorous calculation and evaluation of which payment reform strategies are truly delivering value and enhancing the quality of care.  A good deal of our time and focus in the coming year will be spent thinking about ROI and benchmarking the success of payment reform programs.

We can have wide varieties of payment reform programs, but at the end of the day, this effort is about improving health outcomes for patients and bending the cost trend for patients, their employers, and other purchasers — we need to know which models really do that.  We’re still not sure whether our 20 percent by 2020 goal is on the mark, but we should only count payment reforms that meaningfully move us toward that goal by improving patient care and making it more affordable.

We can’t do it alone. We look forward to continuing to partner with the major national plans, and hope all plans and providers can share their efforts in our National Compendium on Payment Reform.

Email This Post Email This Post Print This Post Print This Post

Don't miss the insightful policy recommendations and thought-provoking research findings published in Health Affairs.

1 Trackback for “Payment Reform: Progress And Lessons Learned”

  1. Healthcare Transformation: Coping With the Neutral Zone | e-CareManagement
    September 24th, 2013 at 5:50 pm

3 Responses to “Payment Reform: Progress And Lessons Learned”

  1. Thomas Cox Says:


    Yes, one might think that the major players would be aghast at the idea of increasing costs while decreasing the amount and quality of care, except…

    The things that transferring insurance risks to health care providers do are very much appreciated in some quarters.

    Transferring insurance risks forces providers to reduce the care they provide – Score one for anyone who doesn’t like insurance at all, who wants to trash Medicare and Medicaid, or who simply believes that a large, efficient national health insurer is a bad idea.

    Medicare isn’t an inefficient insurer – despite decades of sabotage by those who would prefer to destroy rather than merely undermine it.

    But, there is something even more fundamental. Capitated health care providers must slash services to cope with their inefficiencies as insurers. As they slash services they experience opportunities to profit. If they don’t slash services they are virtually guaranteed to have operating losses.

    If, as I suspect, capitation was introduced, and supported by, people who care a lot more about generating profits, even if non-profit mechanisms has worked in the past,
    will always see higher profits as a boon.

  2. leetocchi Says:

    It does seem counter intuitive that the government programs want to pay not for each service rendered, but by some convoluted, global, risk sharing formula. We are now onto 30-40 yrs of rule changing formulas to try to lower the cost of healthcare, but end up always paying more, and adding more bean counters to the program. Can we just teach the insurance executives, lawyers and policy makers how to fix a broken hip and let them do it?

  3. Thomas Cox Says:

    While the notion that placing health care providers at financial risk for failure to deliver high quality, cost effective care, is very appealing, it is also quite flawed.

    Health care providers, like all economic actors, tend to respond to risk in predictable ways. Risk averse health care providers seek methods to reduce their risk, just as third-party payers have attempted to reduce their risks of excessive costs.

    Faced with two patients, with identically profitable average cost, but very different variation in cost, risk averse health care providers will select low variation patients over high variation patients every time.

    This makes perfect sense since the predominant approach to professional life for health care providers is risk reduction. Most physicians and nurses chose medicine and nursing over careers as casino gamblers because the earnings for physicians and nurses are more stable.

    For the vast majority of patients this does not pose a problem. However, there is always a most variant 5% of patients that will find it difficult, if not impossible, to find a risk-seeking health care provider who is willing to take on the burden of caring for them.

    Given a choice between a physician whose performance is predictable, grounded in solid principles of care and based on scientific principles and a physician whose performance is based on whimsy, hunches and long shots, most patients will opt for the former. In fact, the third party payers in your coalition want exactly the same physician. The problem is that this physician does not want the clinical, financial and litigation risks that accompany the 5% of patients with the greatest variability in costs.

    But it is understandable that third party payers continue to strive for a solution that does not exist, it takes everyone’s attention off past failures.

    The core of the approach to cost management that is still be pushed comes down to yet another form of capitated payment where health care providers, rather than third party payers, manage the risks of cost variation.

    Capitation could not work in 1973 and it cannot work in 2013 or beyond because it violates the most essential requirements for any effort to manage financial risk through insurance. The problem here, which I describe in “Standard Errors: Our Failing Health Care (Finance) Systems And How To Fix Them” ( is confusing standard errors and standard deviations.

    The flaw is assuming that sub-portfolios of insurance risks can be transferred from large, capable risk aggregating organizations such as insurers and managed care organizations to smaller health care providers, such as physicians, hospitals, nursing homes and home health agencies without any loss whatsoever in the core function of risk aggregation: Risk reduction.

    This has not, nor will it ever, work. The real result of 40 years of capitation financed health care is increased costs, reduced quality, risk avoidance, greater barriers to care for outlier patients and an overall reduction in early identification and treatment of patients.

    Yes, health providers ought to behave better than they do. But it is absurd for third party payers who are attempting to abandon their legitimate roles as insurers, to point fingers at health care providers or inefficiency.

    Are third party payers really in a position to decry inefficient health care providers when they are systematically destroying the known efficiencies of insurance mechanisms that have been well understood mathematically since the end of the 18th century and repeatedly replacing them with mechanisms that are mathematically flawed?

    Large insurers manage risks more efficiently than small insurers and risk assuming health care providers. There is no way to transfer insurance risks from large, efficient and capable insurers to smaller, less efficient and less capable insurers.

    What we need is a return to non-capitated payments, extensive review of the appropriateness of billings and immediate prosecution for health care providers who defraud third party payers. Failure to identify fraudulent behavior, whether due to over-billing or under-serving, is not an option if we want efficient, sustainable health care (finance) systems.

Leave a Reply

Comment moderation is in use. Please do not submit your comment twice -- it will appear shortly.

Authors: Click here to submit a post.