Provider Payment Incentives and Delivery System Reform

Book Chapter
October 2008
Paul B. Ginsburg

Recent analyses by the Congressional Budget Office and others have shown that the long-term federal budget outlook is dominated by spending trends in Medicare and Medicaid. These trends cannot be addressed in the long term without changes in the entire health care delivery system that slow spending increases by promoting more efficient delivery of care and more judicious choices about incorporating new medical technologies into the system.

Health practitioners, such as physicians, and provider organizations, such as hospitals, seek to serve patients in an efficient and high-quality manner. They also respond to financial incentives embedded in the structure of payment rates for their services. Provider payment rates play an important role in how well the health care delivery system is able to supply quality, efficient care.

Key policy recommendations:

• Revamp the Medicare payment system so that relative payments for different services better reflect relative costs of delivering those services, thus eliminating inadvertent incentives that negatively influence practice patterns.
• Promote care coordination through ideas such as having beneficiaries designate a primary care physician practice to serve as their medical home, with the practice receiving a capitation payment designed to cover services not reimbursed under fee-for-service arrangements.
• Bundle payments for acute episodes of care involving a major procedure or inpatient stay; for example, combining facility and home health post-acute services into the payment for inpatient care.

Free access to this chapter—and the rest of the book titled The Health Care Delivery System: A Blueprint for Reform—is available at the Center for American Progress Web site.