The Next Generation of Payment Reforms for Population Health

Focus Area:
State Health Policy Leadership
Delivery System Reform

Kushal T. Kadakia

To celebrate its 100th year, The Milbank Quarterly has published a centennial anniversary issue with 36 articles that consider the future of population health. In this Q&A, Kushal T. Kadakia of the Harvard Medical School discusses his contribution to the issue, “The Next Generation of Payment Reforms for Population Health – An Actionable Agenda for 2035 Informed by Past Gains and Ongoing Lessons,” co-authored by Anaeze C. Offodile II of the Rice University Baker Institute for Public Policy. Their article discusses health care financing in the United States, a recent history of payment reform, and considerations for the next decade of payment reform.

What is the American health care paradox?

The American health care paradox is the fact that the United States spends more on health care, both per capita and as a percentage of GDP, than any other country in the world. Despite this disproportionate investment, the US does not have disproportionately better outcomes. Instead, we have a system characterized by misaligned incentives, pockets of waste, and fundamental gaps in basic access to care that inhibit progress toward population health.

What are some of the successes and shortcomings of the past decade of payment reform policy?

The past decade of payment reform policy has been defined by the Center for Medicare and Medicaid Innovation’s (CMMI) experiments with different payment models. CMMI was created in 2010 under a provision of the Affordable Care Act, which provided the agency with a mandate and funding to rigorously test how changing different levers or incentives could affect cost, quality, and outcomes. A decade later, we’ve seen that while some of models have shown savings, by and large, most have not. These experiments have therefore provided valuable learnings about what does and does not work when it comes to payment reform.

These experiments didn’t address all the levers of payment reform. The demonstration models primarily focused on interventions to generate cost savings, which is of course an imperative given both the amount the US spends and concerns about the financial solvency of Medicare. At the same time, payment reform should ultimately deliver better value for patients. Part of delivering better value means addressing the drivers of health, not just the drivers of cost, and this theme has been underrepresented in experiments to date.

How can the next generation of payment reform improve population health?

There are two aspects of advancing health equity via payment reform.

The first is making sure models don’t negatively impact certain populations. A growing body of literature has demonstrated how bluntly designed financial incentives run the risk of penalizing well for providers who serve patients who are underserved and may require more resources. Consequently, one policy priority is seeking to prevent inequity in payment reform by proactively addressing these structural issues in model design.

The second approach is thinking about how we can design payment reforms with the goal of aligning financial incentives to promote equity. One example is CMMI’s new model called ACO REACH, which includes requirements for providers to develop plans for addressing health equity, including closing disparities in outcomes among their beneficiaries in their system.

Lastly, there’s a need to broaden the lens for payment reform and look upstream. In health care, we tend to limit our focus to resources that can be allocated in doctor’s offices or in hospitals like an MRI scan or a laboratory test. Those services are certainly important for patients’ health, particularly when they’re acutely or chronically sick, but we also need to recognize the factors that affect patients’ health outside of the four walls of the clinic or hospital. This might involve health system partnerships with entities outside of health care like community-based organizations, social service agencies, or public health departments.

Why is health care financing at an inflection point?

Three reasons. The first is a policy reality. We’ve spent a decade experimenting, and the results have been a mixed bag. Of course, conducting an experiment is not a guarantee it will work, and we’ve learned a lot through the process of conducting demonstrations. But now, as we move into CMMI’s second decade, we need to make sure we implement the lessons we have learned to date, refine model design, and continue scaling the payment reforms that do work to deliver a return on taxpayers’ investments.

The second issue is financial. Health expenditures in the U.S. continue to grow and outpace other countries. Consequently, there remains a real need to think about how to design payment reforms that can get durable improvements in cost, not just one-off savings here or there.

The third reason is demographic. The trend of population aging will add to the pressures of the Medicare program, reinforcing the urgency of payment reforms. At the same time, Medicare policies are often a bellwether for all payers across all sectors and provide a platform for influencing health care financing for other populations. Additionally, 2023 is the first year that the majority of Medicare services are contracted out through private insurers, through Medicare Advantage. That’s notable because it highlights how moving forward payment reforms can’t be monolithic. They need to be focused on multi-payer engagement and alignment because we’re entering a far more heterogeneous environment when it comes to policy regulation and economics.

What are the elements of your action agenda for both scholars and policy makers moving forward?

There has been a revolution in health services research over this last decade. Continuing to bring rigor to policy design is something scholars can contribute to inform thinking at the federal level, particularly as the Medicare program tries to focus on a few of its models.

On the policy front, our article highlights the need to put population health back into population payment. While savings are certainly important, and many of the fiscal considerations are very real, it’s important for payment reform to not be an end in itself. It’s supposed to be a vehicle for delivery system transformation. If payment is a signal of what we value, then changing how we pay for things enables us to value things differently. And hopefully that means making sure we better value what beneficiaries value, which is their own health.

Looking to 2035, what are your specific policy recommendations for payment reform?

The Medicare program has highlighted some goals, including moving all Medicare beneficiaries to an accountable care organization by 2030. Recognizing these goals at the federal level, it is necessary to consider how to get there. For example, to move all beneficiaries to these accountable care organizations, it’s important to navigate what that means given that many Medicare beneficiaries now receive care or financing through privately insured entities such as Medicare Advantage. Likewise, even though there is a global commitment toward health equity and addressing upstream drivers, practically that means embedding the concept of health equity into every model, so it’s a core part of a model design.

Policymakers should also think of an approach to new biomedical innovations, drugs, and devices, which can be very beneficial, but also very costly, using the lens of payment reform so that they are affordable and accessible for patients.

Do you have any state level recommendations?

Efforts to address upstream drivers by partnering with different entities to transform the health care system are a real opportunity where states can lead. States such as North Carolina have been leaders on the social determinants front. States like Maryland have been leading when it comes to developing population-based payment models, such as all-payer rate-setting through global budgets. Other pioneers include Pennsylvania, which is developing rural-specific payment models, and Oregon, which is developing multi-payer models. These examples illustrate how states can be the laboratories for new approaches to payment reform, and creatively inform both federal policy and impact the health of the patients living in those states.