I recently gave the keynote address at the New York State Health Foundation Conference “Payment Reform: Expanding the Playing Field.” This blog post is adapted from those remarks (you can watch the half-hour speech beginning around the eight-minute mark).

I had my epiphany shortly after I announced my departure from the National Academy for State Health Policy (NASHP) about nine months ago. In an effort to help find my successor, I contacted some executive search firms. One firm quoted what they referred to as the “market price.” When I pressed them to tell me how much effort this price represented, they declined to do so. Ultimately, I recommended that NASHP contract with a search firm that charged by the hour.

It was then that I realized that, given the choice between capitation (a fixed fee for the outcome I desired) and fee-for-service (an hourly rate with no accountability for the outcome), I, as a purchaser, chose fee-for-service. Only a hypocrite would go around talking about the importance of payment reform, while secretly conducting business the old way!

Having given the matter some further thought, I present my five reasons for opposing payment reform:

1. The premise of payment reform is flawed.

The major actors in today’s health care system have thrived in the old payment model, which rewards volume: filling beds, making referrals, conducting tests, and the like. We now say we want them to improve population health and clinical outcomes while holding down costs. Different competencies are required to achieve these different objectives. There is no reason to expect that the people and institutions that were successful under the old model are the best people and institutions to charge with carrying out the new model.

2. Payment reform is insufficiently disruptive.

As we capitate or bundle payments, these aggregated payments are generally given to the highest cost actor in the system: the hospital, health plan, or large medical practice that already has the most resources. We expect that, due to new incentives, they will share those resources with other, lower-cost professionals like dieticians, social workers, and community health workers, whose efforts may improve health outcomes. But this may be wishful thinking. Hospitals and health plans operate with inertia and under constraints that may prevent them from having what an observer might consider a rational response to the new incentives. Marginal changes in payment policy fail to disrupt the concentration of power held by expensive institutions, thereby limiting the likely effects.

3. There is no evidence to suggest that payment reform will achieve the goals we need it to achieve.

The Institute of Medicine tells us that 30 percent of health care spending is wasteful. Only nineteen of the original thirty-two Pioneer ACOs remain in the program, and only twelve are producing enough savings to be shared. Only 58 of the more than 200 participants in the Medicare Shared Savings Program are saving more than 2 percent. For all the effort we are putting into payment reform, at this point, we don’t have an evidence base that shows what we are doing will achieve the end result we desire.

4. The original rationale offered for payment reform doesn’t match the current objectives.

The current iteration of payment models began with integrated health systems, like Geisinger and Intermountain, complaining that they were financially penalized when they delivered high quality care. They had a point. Efforts to, for example, improve birth outcomes, yielded financial losses due to reduced revenue from Neonatal Intensive Care Units. Today’s narrative is that we need payment reform to leverage a system that is resistant to change to fundamentally alter the model of care. The original rationale required only that incentives be directionally correct — keep your savings when you invest in better quality. The more ambitious goal of payment reform opens up tremendous risks such as providers gaming quality metrics and avoiding complex patients. The payment reform movement has been hijacked to suggest it can accomplish things its founders never imagined.

5. Payment reform poses a risk for the growing understanding of the importance of patient-centered care.

Imagine the following scenario: three people come to the doctor with knee pain. Each person has their own goal for the outcome of their treatment: one wants to manage pain during her daily activities, one wants to play tennis again, and one wants be completely pain free. Now try and imagine a “value formula” for providers to achieve these three patient-centered outcomes. Even if you could come up with one, operationalizing it would be nearly impossible. And what provider would be willing to accept financial risk for achieving such varied patient goals? When we implement payment for “value” we oversimplify to make the methods administrable, but lose all nuance of patient preference.

Despite all of these reservations, I do not actually oppose payment reform. We all know current payment methods are seriously flawed and that we can do better. But this list serves as a reminder that payment policy, like grass, is always greener on the other side. Take a look at part 2 where I will present five elements needed to make payment reform succeed.