Changing Expectations: Affordability

The following is excerpted from the recent paper by Jon Shreve, “Changing Expectations in Healthcare.”

Increases in medical costs in the United States have steadily outpaced inflation, and now such costs comprise more than 16% of GDP. Left unchecked, they are projected to grow to 20% in 10 years. Uneven quality, lack of integrated care, outdated information systems, and the wrong financial incentives have all contributed to the rise.


The basis for paying for healthcare must shift to one that rewards healthy outcomes and that provides financial incentives for following evidence-based medical practices. Such a shift is difficult in a system dominated by fee-for-service pricing with little or no accountability for performance. Several past and recent innovations may be useful in future reforms.


  • During the 1990s, physicians were often paid for the number of patients they treated rather than the volume of services they generated. The capitation approaches used often were not refined or adequately supported, which in part led to the managed-care backlash. Still, medical cost trends were at a lower level than they have been before or since. This was a far from perfect but nevertheless elementary example of beginning to pay providers at a level consistent with our expectations for them.
  • Another solution, risk-adjusted episodic payment, envisions payers like insurance companies paying all hospitals or medical professionals fixed amounts per episode of care, depending on the condition being treated.
  • Recent movements toward pay for performance or medical home head in this direction, but without a change in the underlying compensation scheme, each additional service generates an additional fee.


Whatever form it takes, restructuring the payment system can motivate healthcare providers to perform—and payers and patients to pay for—only those procedures consistent with the best medical evidence and the needs of the patient. A system driven by results allows physicians more time to focus on the treatment they deliver rather than the quantity of services they provide.


For more, see earlier posts about access and quality.


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