The movement to transform how we pay health care providers has taken a dramatic turn in the past several years as more and more purchasers, providers, and other stakeholders seek financial incentives to deliver high-quality, cost-effective care and enhance population health. While most purchasers and health care organizations are still paying providers on a fee-for-service chassis, use of alternative payment models is growing in many markets.

In recognition of important recent changes in the landscape of payment reform (including the major announcement from the US Department of Health and Human Services in January), it is appropriate and necessary to ask where more work needs to occur to ensure that alternative payment models succeed in achieving broad application and realize their full potential. Grant-making organizations have an opportunity to act on the answers to this question. We have identified six areas of opportunity for investment.

  1. Support the development and testing of payment models that integrate and align incentives to address public health, social services, and behavioral health. Currently, the Center for Medicare and Medicaid Innovation and other stakeholders have great interest in finding ways to (a) better integrate services that address social determinants of health and to (b) align public health programs with health care delivery. With respect to alignment of population-based public health approaches with health care delivery strategies, most of the work on the topic to date has been conceptual. More work has been done on primary care and behavioral health integrated payment models, but most of that work involves supplemental care management payments, rather than significantly modifying the basis of provider payments.
  2. Explore barriers and solutions to safety-net provider participation in payment reform and provide technical assistance to test solutions. To date, few safety-net providers have used alternative payment models. In part, this is because such providers often lack the capital reserves to invest in the staffing data and systems resources required to provide population-based health care and to assume downside risk. Foundations can provide support for researchers to assist in identifying what safety-net providers need to succeed under new payment models. (See, for example, this Commonwealth Fund-supported project.) More importantly, grantmakers can provide technical assistance to safety-net providers to test and evaluate the effectiveness of potential strategies. Today, the Robert Wood Johnson Foundation (RWJF) is releasing a Call for Proposals (CFP) designed, in part, to address this issue.
  3. Support research and testing of strategies to address the inflationary effects of provider market consolidation on payment. An unintended consequence of payment reform and risk shifting from payers to providers is the market consolidation of providers. In many markets, consolidation translates to reduced competition and provider control over prices. Foundations can use their influence to elevate this issue further in the public discourse by (a) funding studies of the impact that market consolidation is having on the cost and quality of care, (b) supporting strategies (such as true price transparency) to reduce the negative effect of consolidations, (c) highlighting examples of consolidated markets where purchasers and payers are more successful at implementing payment reform efforts and taming cost growth, and (d) elevating discussion and exchange of ideas to a national audience.

For example, as to our suggestions (a) and (b), a funder could commission a study of key markets that have significant consolidation, like Pittsburgh, Boston, and many other cities, and show how the cost of care and quality of care has been affected by provider consolidation. The study could assess what efforts are happening in the market to help mitigate the impact, including regulatory and market strategies. As for suggestion (c), foundations can also fund those working in highly consolidated markets to implement solutions that have been successful in other markets. Finally, as to our suggestion (d), foundations can convene leading national voices to participate in a multipart discourse on strategies to address inflationary effects of market consolidation that are worthy of testing and then disseminate the strategies.


  1. Support the development and testing of alternative payment models in areas of opportunity or unaddressed needs, like specialty pharmacy and consumer-linked models. There are still many unexplored opportunities within payment reform, including how to best align incentives for consumers who are faced with higher deductibles and are increasingly becoming price sensitive, with incentives for providers who may be financially responsible for the health of those consumers. Grantmakers might consider supporting a health plan that is creating new products that are aligned with physician payment models.

Similarly unexplored are models for influencing use of specialty pharmaceuticals. Specialty pharmaceutical spending accounts for a disproportionate amount of all pharmacy spending and is predicted to quadruple in the next six years. There is a need for alternative payment models (in particular, for oncology drugs) that encourage the use of evidence-based practices and the lowest-cost appropriate drugs, instead of rewarding providers through the fee-for-service system for purchasing and administering specialty pharmaceuticals.


  1. Convene health plans and providers to collaboratively address barriers and explore shared solutions with technical support. There is a growing list of barriers affecting the effective spread of payment reform. Two examples are the lack of standardization on performance measures and risk models (payment models that place providers at financial risk based on performance). We have frequently heard from providers about the inefficiencies created through nonaligned measurement sets and risk models that are similar but seldom the same. Where there is marketplace support, foundations can convene providers and plans with neutral facilitators to focus on identifying shared solutions to help facilitate the advancement of payment reform within the market. Foundations could use their visibility and credibility by directly hosting and funding the convening.

Only when there is true backing and prioritized support from major market payers and providers should foundations support neutral market conveners (“backbone organizations”) seeking alignment. For example, the RWJF has participated in extended, voluntary multistakeholder efforts at payment reform alignment only to have a leading insurer walk away from the table once hard-fought consensus has seemingly been reached among the parties.


  1. Support innovation and the spread of best practices when designing provider compensation within alternative payment models. While provider organizations are participating in alternative payment models, individual physicians and other providers affiliated with them are overwhelmingly being paid or compensated based on volume. This is particularly true for nonphysicians and for specialty care physicians. The next step in payment reform efforts should be focused on the “payment within alternative payment models”—or how individual physicians are compensated by organizations participating in those models. Alignment of incentives between the provider organization and physicians it employs or contracts with is necessary to the success of alternative payment models. Funders can support studies on the status of alignment, key issues related to physician compensation, and the impact different compensation schemes have on quality, utilization, and cost of care, as well as patient satisfaction. They can also fund the development, testing, and evaluation of alternative provider payment models. The RWJF has supported some discussions about this topic and sees this as an underexplored area in need of additional attention.

In summary, grantmakers (the RWJF included) have played an important role in developing and spreading payment reform. With its application now achieving wide acceptance and growing quickly, funders should consider what the future of payment reform might look like and what steps they could take—individually and in collaboration—to address unmet challenges and ensure future success.

Do these considerations resonate? Are there others you’d point to? Please share your thoughts with us here in a comment to this post.