Optimizing State Policies for Primary Care Payment Reform 

People across the country are struggling to access primary care as practices face challenges in recruiting and retaining clinicians. These workforce shortages are driven by large and pervasive issues plaguing primary care, including historic underfunding relative to other specialties, a reliance on fee-for-service (FFS) payment, and increasing administrative burdens and demands. Payment reform is urgently needed to strengthen primary care. 

State governments play a critical role in catalyzing primary care payment reform. They act as the payers, purchasers, or regulators for Medicaid, state employee health plans, and fully insured commercial plans in the individual and group markets. To inform state-level primary care payment policies, we reviewed recent policies advancing primary care payment reform in the commercial sector and conducted interviews with 50 stakeholders in five pioneering states: Arkansas, Colorado, Delaware, Rhode Island, and Washington. Our findings, which reveal lessons for states beginning this work, are detailed in a report and organized into a playbook for implementing the recommendations.  

We find that successful state policies on primary care payment reform must (1) promote alternative payment models (APMs) that provide a meaningful amount of payment delivered through non-FFS mechanisms, including prospective payment; (2) increase investment in primary care; and (3) align payment approaches across payers within the commercial sector and across all sectors.  

Lessons from States Pioneering Primary Care Payment Policies 

1. Provide a meaningful amount of payment delivered through non-FFS mechanisms, including prospective payment 

APMs that offer only a minimal amount of non-FFS payment do not enable care transformation (e.g., interprofessional team-based care, population health management). As such, policies that do not require APMs to provide meaningful amounts of non-FFS payment run the risk of leading to “APMs in name only.” The type of APM also dictates its impact. Some interviewees distinguished “advanced APMs” that include prospective payment from models that include bonuses or penalties based on total cost of care or quality performance in addition to FFS. If bonuses are earned, they are often received over 18 months after a performance period. These APMs without prospective payment have been more commonly implemented, but many believe the less predictable and delayed payments do not truly enable care transformation. States have options to incentivize more impactful APMs through regulation, including defining primary care APMs as relying on prospective payment for a defined set of services; setting a target for the proportion of overall primary care spending in prospective payments; or requiring plans to offer APMs with non-claims payments at least equivalent to Medicare primary care demonstration programs.  

2. Increase investment in primary care 

Without additional resources, primary care practices are not able to transform care delivery by implementing advanced care capacities like interprofessional team-based care (e.g., integrated behavioral health). Increased investment in primary care should be a prerequisite, or concurrent objective, to policies that incentivize adoption of APMs. Legislation can specify a primary care investment target across state-regulated commercial payers or require that a target be set in regulation.  

3. Align payment approaches across payers within the commercial sector and across all sectors 

Many stakeholders lamented the limited scope of primary care policies targeting the commercial sector under state jurisdiction, which may constitute only 10-15% of the overall health insurance market. Medicare, Medicaid, and self-insured employees all fall outside this scope, which limits their impact for any given primary care practice. If new APM investments or incentives only pertain to a small proportion of patients, the practice won’t be able to make significant changes. Worse yet, variation in incentives and requirements increases administrative burden. States should align primary care payment reform policy for all payers under state jurisdiction, inclusive of state-regulated commercial plans, Medicaid, and state employee health plans. To the greatest extent possible, self-funded employers should be involved as well.  

Key Steps to Advance APMs for Primary Care   

These steps span initial coalition building, voluntary efforts, legislation, regulation, and implementation. Further details can be found in the policy playbook.  

1. Build your base. Find (or be) a champion. 
2. Develop your vision for aligned primary care APM policy and situate this in a broader state primary care strategy. 
3. Hold voluntary stakeholder convenings prior to drafting legislation, developing regulation, or participating in federal demonstrations. 
4. Take advantage of federal demonstration opportunities when available. 
5. Advance legislation that expands regulatory authority to develop affordability standards for primary care, drive multi-payer alignment, and create an infrastructure for continued improvement. 
6. Set requirements for APM design in regulation that balance standardization and flexibility. 
7. Scale and support APM adoption through regulatory targets, data monitoring requirements, and enforcement mechanisms. 
8. Maintain regular communication in enforcement and implementation. 

Primary care payment reform, including through APMs, is a critical piece of the solution to better support primary care and address workforce shortages. State legislators, regulators, and other primary care champions should take action to advance payment reform and can follow these steps to optimize their approach.   

This project was conducted by the Farley Health Policy Center with support from Arnold Ventures.