Catalyst for Payment Reform

Pairing Payment Reforms and Benefit Design


Pairing Payment Reforms and Benefit Design

As discussed in Get Started: Understanding Payment Reform, payment reform attempts to stimulate higher-value care and counterbalance the incentives in traditional payments to perform more tests and procedures.  Yet, value- and volume-based methods are often implemented together.  All methods have strengths and weaknesses, and their effect on health care provider behavior depends on operational design features and the context for implementation.

As addressed in Get Started: Understanding Benefit Design, benefit design also typically involves the implementation of more than one approach, each with its own strengths, weaknesses, and impact on consumer health care behavior based on the context in which it is implemented, size of the incentives and operational design.

While payment and benefit designs each have received significant attention, the intersection between the two has received little.


Why Should Employers and Other Health Care Purchasers Care About Pairing Payment and Benefit Design?

There are a lot of efforts today to reform health care payment and innovate with health insurance benefit designs in the hope that both will improve the cost and quality of care.  However, many stakeholders have not yet consciously examined how these mechanisms can act together to align the incentives of providers and consumers and mitigate the weaknesses of any approach on its own.  Certainly, no payment method or benefit design acts in isolation. In combination, payment and benefit design incentives can either work in unison or in conflict. For example:

  • Some provider and consumer incentives align well by encouraging consumers to seek care from high-value providers and incentivizing those providers to deliver high-value care (e.g., narrow network and shared risk).
  • Other benefit designs encourage consumers to seek services that they need to improve their outcomes while payment approaches hold providers accountable for their patients’ outcomes (e.g., value-based insurance design and pay-for-performance).
  • Other combinations create tension between the provider and consumer by, on the one hand, creating financial disincentives for the consumer to seek secondary preventive services because s/he has to pay the entire cost before meeting a deductible while, on the other hand, making the provider’s financial rewards contingent on the delivery of secondary preventive services (e.g., high-deductible health plan and pay-for-performance).


Pairing Payment & Benefit Design in Accountable Care Organizations

Attempts to reform the delivery of health care turn to mechanisms—including payment methods and benefit designs— to improve the quality and efficiency of care, provide greater access to care, and create healthier populations.  However, it is critical to anticipate the potential conflicts and harmonies that these mechanisms can create together.

For example, accountable care organizations (ACOs) that take on financial risk in the form of a shared-risk payment arrangement or capitation, in combination with a narrow network, may be the most successful at driving consumers to seek care from the ACO’s providers only. This makes it easier for the ACO to manage and coordinate the care of the patients for whom it is responsible. ACOs may be less willing to take financial risk if their patients can seek care from non-ACO providers. Therefore, a broad network would not support an ACO with a risk-based payment arrangement.


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