Editor’s note: This post is part of a periodic Health Affairs Blog series, which will run over the next year, looking at payment and delivery reforms in Arkansas and Oregon. The posts will be based on evaluations of these reforms performed with the support of the Robert Wood Johnson Foundation.

In early 1994, as I went about finding a practice to join after residency, every physician with whom I spoke discussed managed care at length. As a young family physician dedicated to prevention and early intervention, I was convinced that managed care answered many of the historical challenges faced by primary care physicians. At last we’d be able to pay for the social workers who could facilitate important mental health care and human services for our patients and for the group nutrition classes we wanted to run in our practices.

Yet just four years later, as I left private practice to return to academic medicine, managed care was virtually dead. All its promise had been undermined by a range of structural and environmental challenges.

The 1990s Managed Care Structure

From a structural perspective, managed care was inherently flawed. Instead of health care professionals deciding what was best for our patients, lay people without adequate training were making these decisions. Primary care physicians, who should have been seen as the center of health care transformation, were instead labeled ‘gatekeepers.’

While we could have been educating patients about the value of primary care in terms of health outcomes and cost savings, the 1990s managed care structure made primary care physicians seem like road blocks to excellent care. Additionally, managed care was almost exclusively the province of commercial insurance, rather than government-funded insurance, so competition between plans and provider groups developed in unhealthy ways. Health care became dominated by for-profit models, where there will always be tension between patient focus and profit.

Environmental challenges also prevented managed care from achieving its potential. Insurance rates skyrocketed well beyond inflation during the early to mid-1990s, which led employers to change plans (and thereby provider pools) almost annually. Since some other provider would reap future benefits if a member switched plans, primary care physicians were discouraged from investing in preventive interventions.

Beyond that, we did not have the tools to talk with patients about which tests, medications, or procedures really made a difference in outcomes. The medical community did not yet have easy access to evidence-based reviews. (At a conference in early 1995, I remember being delighted to learn of the Cochrane Collaboration, which works to make research-based evidence available to help inform health care decisions.) Those reviews have changed the nature of patient-provider conversations.

Alternative Payment Methodologies in Oregon

Given this rather unpleasant introduction to managed care so early in my career, why am I optimistic about current efforts to implement alternative payment methodologies in Oregon?

First and foremost, this time around the term encompasses multiple methods of financing care. The APM pilot described in the first post in this series is one example of several experiments currently underway in Oregon. Other alternative payment methodologies under consideration include bundled payment for episodes of care, shared savings (physicians and/or practices receive some share of savings, assuming quality remains high), pay for performance, and supplemental payments for patient-centered primary care homes (PCPCH). No longer do we face a one-size-fits-all strategy. We are no longer in the world of straight capitation regardless of quality, risk stratification of one’s patient panel, or practice location. Instead, practices can work with payers to develop the structure that fits their circumstances best.

Second, current payment reform efforts in Oregon are driven not by commercial insurers, but by the state’s expansion of comprehensive care delivered through Coordinated Care Organizations (CCOs). The Federally Qualified Health Centers (FQHCs) taking part in the APM pilot are all part of a larger CCO. CCOs are locally controlled health entities—including hospitals, primary care and sub-specialty providers, mental health, and dental care—that deliver health care and coverage to people eligible for Medicaid (Oregon Health Plan), with an emphasis on expansion of patient-centered primary care homes, integration of physical and mental health, prevention, and reducing costs through fixed global budgets and quality improvement initiatives.

We have, in essence, placed a $1.9 billion bet with the federal government that by implementing this new CCO structure, we can dramatically diminish the inflation in medical costs while preserving, and preferably improving, the quality of care for Oregonians served by the Oregon Health Plan.

CCOs can structure payment in ways that fit their providers best because they are regional and run by independent boards in collaboration with Citizen Advisory Boards. Moreover, the quality indicators for CCOs come from thoughtful discussion of evidence-based practice, leading to patient-centered care focused on outcomes first, with cost savings expected to follow. Oregon has also developed its own metrics for PCPCH, which are written from the patient’s perspective, and an entire website offering resources for patients and practices.

Third, when commercial managed care began in the 1990s, practices did not receive any training or resources; physicians were thrown into the deep end and told to swim. Not surprisingly, practices, and ultimately the model, sank under the weight of unreasonable expectations. Now, health care providers in Oregon have many opportunities for learning collaboratives (which provide a forum sharing best practices and lessons learned) and experienced physicians commonly serve as facilitators and mentors to practices implementing PCPCH.

All this is not to say that every practice taking part in the APM pilot will have smooth sailing in the transition periods. Barriers such as geographic isolation (much of Oregon is quite rural), small practice size, and resistance to change all could potentially interfere with effective transition to APM. Some communities lack critical resources; the most common is an inadequate number of mental health providers. Those of us in positions to help must do so vigorously for some time to come, and those in transition must keep open minds and commit to the process. I have been heartened by both the number of physicians stepping up to help, and the participation in training opportunities and learning collaboratives.

Ultimately, I believe that a range of alternative payment options, tailored to individual practice characteristics and combined with effective support, will transform delivery of primary care, and eventually all of medical care. Only with this transformation will we actually develop a health care system, rather than the illness treatment system in which we have practiced for so many years. The APM pilot in Oregon FQHCs is a critical step on this path.

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