Making the Business Case
for Payment and Delivery Reform

In order to support improvements in both healthcare delivery and payment systems, individuals and organizations that purchase healthcare services need a clear business case showing that the proposed change in care will achieve sufficient benefits to justify whatever change in payment healthcare providers need to support the change in care. Healthcare providers also need a clear business case showing that they will be able to successfully deliver high-quality care in a financially sustainable way.

Making the Business Case for Payment and Delivery Reform describes a ten-step process to develop such a business case, and provides a detailed example for how to apply the process to an initiative to improve management of chronic disease patients. The report also describes the types of data that are needed to carry out all of the steps in a good business case analysis.

Overcoming the Barriers to
Payment Reform

There is widespread agreement that significant changes are needed in the way healthcare providers are paid if the nation is going to successfully control the rapid growth in healthcare costs and improve the quality of care for patients. However, progress has been slow in implementing payment reforms because there are many significant barriers to changing payment systems that have been in place for decades.

Fortunately, although the barriers to payment reform can seem daunting, they can be overcome.
Ten Barriers to Healthcare Payment Reform and How to Overcome Them describes many of the biggest barriers that physicians, hospitals, health plans, employers, and policy-makers are facing in implementing payment reforms, along with strategies for solving them. For example, the report describes:

  • How "shared savings" payment models can actually be a barrier to significant changes in care delivery because they make no real changes to the fee-for service system, and how only true payment reforms, such as episode-of-care payments, condition-specific comprehensive care payments, and global payments can allow win-win-win approaches for providers, payers, and patients.
  • The ways that payment systems can be structured to give providers accountability for the types of services and costs they can control, but protect them from risks associated with costs they cannot control.
  • How payment reforms and Accountable Care Organizations are unlikely to be successful unless physician compensation systems are also changed to reward value instead of volume.
  • Why lack of access to data on utilization and costs can prevent healthcare providers from offering to deliver care in ways that will save money for employers, Medicaid, Medicare, and health plans, and ways that better data and analysis can be made available to support successful payment reform.
  • The ways that health plan benefit designs as well as payment systems need to be changed so that patients have the ability and incentive to work with physicians and other healthcare providers to improve quality and reduce costs.
  • The need for more comprehensive, outcome-based measures of quality to accompany payment systems that are designed to control costs.
  • The importance of having all payers using common approaches to payment reform, and the specific strategies that can be used to encourage and facilitate alignment of payment systems in a community.
  • The unique challenges hospitals will face as part of efforts to reduce costs, and the kinds of actions both hospitals and payers can take to address those challenges.
  • How regulatory, accreditation, and payment policies favor large provider organizations in ways that can lead to higher costs, and the policy changes that are needed to foster more effective competition among providers.
  • The need for community mechanisms to ensure there is coordinated action in all of these areas, and the important role that Regional Health Improvement Collaboratives can play in supporting implementation of needed payment and delivery reforms.

Transitioning to Accountable Care

There is growing agreement that many of the cost and quality problems in health care today are either caused by or exacerbated by the way we pay for healthcare services. Although a variety of payment reforms have been proposed to address these gaps, many of them are seen as either doing too little to address the problems caused by current payment systems or as changing payment too radically for most healthcare providers to easily implement.

There is clearly a need for "middle-ground" options - payment reforms that provide greater flexibility and accountability for the costs and quality of care than typical pay-for-performance, shared savings, and medical home programs, but which avoid forcing providers, particularly small physician practices, to take on more financial risk than they can manage or to take accountability for services they cannot effectively control (as traditional capitation systems or full episode-of-care payment systems can require).

Transitioning to Accountable Care: Incremental Payment Reforms to Support Higher Quality, More Affordable Health Care describes a range of transitional payment reforms that can enable primary care practices, specialists, and hospitals to deliver significant improvements in cost and quality for payers and patients as they build the capacity to transition to more comprehensive payment reforms. The report also discusses a series of important issues in the design of any new payment system, including pricing, establishing appropriate limits on risk, and ensuring quality. It also discusses the importance of alignment among multiple payers and ways to achieve that, including ways that the Medicare program can best support payment reform efforts.

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Using Partial Capitation to Support Accountable Care Organizations in Medicare

The federal Patient Protection and Affordable Care Act created a new Medicare payment program to support Accountable Care Organizations (ACOs). Although the program is titled the "Shared Savings Program," and most discussions have focused on using "shared savings" to pay ACOs, the Act allows CMS to use payment models other than shared savings to support ACOs. One of these payment models is "partial capitation." The law states that under partial capitation payment, an ACO would be at financial risk for some, but not all, of the items and services Medicare covers.

Could "partial capitation" be better for patients, physicians, hospitals, and Medicare than the shared savings model? The answer is yes -- read CHQPR's concept paper Using Partial Capitation as an Alternative to Shared Savings to Support Accountable Care Organizations in Medicare to find out how.

How to Create Accountable Care Organizations

In light of the high and rapidly growing cost of healthcare in the U.S., there has been growing interest both in the federal government and in states and regions across the country in finding ways to encourage health care providers to take greater accountability for the overall cost as well as the quality of healthcare delivered to patients. A healthcare provider or group of providers that accepts accountability for the total cost of care received by a population of patients has been termed an "Accountable Care Organization."

Although there has been growing support for creating such Accountable Care Organizations (ACOs), there has been relatively little exploration of how an ACO would actually achieve the goals envisioned for it, what it would look like organizationally, or how it would come into existence. How to Create Accountable Care Organizations attempts to fill this gap.

The report addresses key issues such as:

  • what an Accountable Care Organization should be accountable for, and the likely strategies it would use in order to be successful;
  • the types of healthcare providers that can and should be included in an Accountable Care Organization, which organizational structures would support success in managing the desired accountability, and which organizational characteristics might present barriers to success;
  • the changes in healthcare payment systems which would need to be made in order to encourage and support the creation and operation of Accountable Care Organizations;
  • what governments and communities can and should do beyond payment reforms to create an environment that encourages the formation and successful operation of Accountable Care Organizations; and
  • transitional approaches that can help healthcare providers begin accepting greater accountability on a path toward becoming Accountable Care Organizations.

Download the Executive Summary.

Download the full report.

(You may need to have Adobe Acrobat Reader 8.0 or higher to download the full report. If you have difficulty downloading the report, please email us at:

Paths to Payment Reform

Across the country, there is growing recognition that dramatic changes in healthcare payment systems are needed in order to solve the persistent problems in quality that plague healthcare delivery and to reduce unaffordable costs. Paths to Payment Reform, a new series of policy briefs from the Center for Healthcare Quality and Payment Reform, is designed to explain some of the specific issues which need to be addressed in creating new payment systems and ways to transition to them from current payment structures. The first five briefs are described below.

Is Shared Savings the Way to Reform Payment?

There is growing interest in using "shared savings" as an approach to healthcare payment reform. Medicare has used it as the key element of its Physician Group Practice Demonstration, and it has been proposed as the key mechanism for encouraging the creation of "accountable care organizations."

Unfortunately, there are some fundamental weaknessess in the shared savings approach that make it far less desirable as a payment reform than it might first appear: it doesn't really fix the underlying problems in the payment system; it gives providers risk without resources; it rewards high spenders rather than high performers; it may or may not keep a provider from suffering financial losses; and it's not sustainable as a payment reform.

This policy brief explains the weaknesses in more detail, and describes the right way to share savings as part of an effort to reform healthcare payment systems. Download the Policy Brief.

Which Healthcare Payment System is Best?

There is broad agreement that significant reforms are needed to the Fee-for-Service Payment systems that are commonly used today. The two major healthcare payment systems being discussed as alternatives are Episode Payments and Comprehensive Care Payment (also called condition-adjusted capitation or risk-adjusted global fees).

However, trying to weigh the pros & cons and pick the "best" payment method is a flawed approach - Episode Payments are better for certain kinds of conditions and patients, and Comprehensive Care Payments are better for others. The choice depends on the nature of the cost/quality problems to be solved.

This policy brief outlines two key dimensions of healthcare cost problems, and shows how they are addressed by the two different payment systems. Examples of the kinds of healthcare conditions appropriate for each type of payment system are also defined, including situations in which both can be used jointly. Download the Policy Brief.

Transitioning to Comprehensive Care Payment

One option for improving healthcare quality and controlling costs is to use some form of population-based payment instead of Fee-for-Service payments. There are a variety of different names for this - "Comprehensive Care Payment," "Condition-Adjusted Capitation," or "Risk-Adjusted Global Fee" - but the core element is paying a single price for all of the healthcare services needed by a group of people for a fixed period of time.

However, since Comprehensive Care Payment represents a dramatic change in the way most healthcare providers are paid, it is unclear how many providers could manage under such a payment system. Also, there are concerns about whether Comprehensive Care Payment can work successfully without causing financial difficulties for providers and resistance from patients.

This policy brief outlines six ways that Comprehensive Care Payments need to be structured in order to avoid the problems that traditional capitation payment systems caused. It also defines several potential levels of Partial Comprehensive Care Payments that could help smaller physician practices to transition into this type of payment system. Download the Policy Brief.

Using Medical Homes to Reduce Readmissions

Many people are convinced that the only way to significantly reduce healthcare costs is by some type of rationing, i.e., limiting the kinds of services that Medicare or health insurance will pay for. But there are ways to significantly reduce healthcare spending without taking away anything that consumers want.

A perfect example is hospital readmissions. Research studies and quality-reporting initiatives around the country show that 15-25% of people who are discharged from the hospital will be readmitted to the hospital within 30 days or less, and that many of these readmissions are preventable.

A number of proposals have surfaced for reducing preventable readmissions by reducing or eliminating payments to hospitals when these readmissions occur. The problem with this approach is that it assumes that if a readmission is preventable, it is preventable by the hospital, and that is not always the case.

As outlined in this policy brief, the Patient-Centered Medical Home can help to prevent many readmissions, if it is paid in the right way and focuses on reducing readmissions. Download the Policy Brief.

Transitioning to
Episode-Based Payment

There is growing interest in using episode payments instead of fee-for-service payments as way of improving healthcare quality and controlling costs. An "episode payment" is a single price for all of the services needed by a patient for an entire episode of care (e.g., all of the inpatient and outpatient care they need after having a heart attack). An episode payment system reduces the incentive to overuse unnecessary services within the episode, and gives healthcare providers the flexibility to decide what services should be delivered, rather than being constrained by fee codes and amounts.

The devil is in the details, however: What exactly would be included in an episode payment? And how can healthcare payers and providers transition from the current fee-for-service system to an episode payment structure?

This policy brief describes how to define an episode payment and how to transition to episode payment. Download the Policy Brief.

Setting Payment Levels

Most discussions about healthcare payment reform focus on different methods of paying providers - fee-for-service payments, episode payments, capitation payments, etc. Different payment methods have advantages and disadvantages, but choosing the payment method is only half of the challenge in reforming payment systems. The other half is choosing the right amount of payment. Even if the payment method provides the right incentives, if the payment level is too low (i.e., below the minimum cost of providing care), providers will be unable to provide quality care, and if the payment level is too high, there is no incentive for efficiency.

So how should payment levels (i.e., prices) be set? This policy brief describes the three different methods for setting prices, and some of the advantages and disadvantages of each. Download the Policy Brief.

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