The Next Generation of Payment Reforms for Population Health – An Actionable Agenda for 2035 Informed by Past Gains and Ongoing Lessons

Centennial Issue Value-Based Payment

Policy Points:

  • The predominantly fee-for-service reimbursement architecture of the US health care system contributes to waste and excess spending.
  • While the past decade of payment reforms has galvanized the adoption of alternative payment models and generated moderate savings, uptake of truly population-based payment systems continues to lag, and interventions to date have had limited impact on care quality, outcomes, and health equity.
  • To realize the promise of payment reforms as instruments for delivery system transformation, future policies for health care financing must focus on accelerating the diffusion of value-based payment, leveraging payments to redress inequities, and incentivizing partnerships with cross-sector entities to invest in the upstream drivers of health.

The American paradox of spending a disproportionately greater share of the country’s gross domestic product on health care without achieving commensurate improvements in care quality or outcomes has long rendered the United States an outlier in comparison to other high-income countries.1 Although the economic shock of the COVID-19 pandemic induced a temporary deceleration in spending growth, national health expenditures in the United States still exceeded $4.3 trillion in 2021, and are projected by the Centers for Medicare & Medicaid Services (CMS) to reach $6.3 trillion by 2030.2 Other countries around the world are also grappling with the challenge of curtailing spending, which in both the United States and abroad can be attributed to a number of factors including the evolving burden of chronic diseases, the aging population, and the cost of new medical technologies. However, US health care spending remains aberrant even after accounting for these factors, from substantial added costs arising from administrative waste and unnecessary service provision to fragmented care and incentive misalignment.3

These excess expenditures also reflect a fundamental flaw in how resources are allocated across the American health care system. For example, the United States spends three times as much on wasteful administrative complexity as it does on the entirety of federal, state, and local public health.4 Likewise, the literature on low-value care—which accounts for nearly $100 billion in wasteful spending—should be considered alongside emerging evidence about the under-provision of high-value care, with many high-risk patients often lacking access to clinically appropriate diagnostics and therapeutics.5 Resource misallocation not only exacerbates financial strain for payers, employers, and families, but also contributes to longstanding inequities in health care organization and delivery exemplified by worse access and outcomes for racial and ethnic minorities and low-income populations.6,7

To address these challenges, US health care reform over the past decade has placed substantial focus on rewiring health care financing, specifically increasing provider accountability for utilization (i.e., cost) and/or outcomes. Previous legislation and administrative action sought to slow spending by regulating either the quantity (e.g., the so-called “managed care revolution” of the 1990s) or the price (e.g., Medicare’s Sustainable Growth Rate, which was repealed in 2015) of health care services.8 However, these approaches often focused disproportionately on moderating costs over improving outcomes, and also lacked the broad stakeholder support that is necessary to achieve durable change. Instead, with the passage of the Affordable Care Act (ACA) in 2010, lawmakers sought to promote policies focused on marrying the goals of payment reforms (lower costs) and delivery system transformation (better quality and outcomes).

Open Access


  1. Schneider EC, Shah A, Doty MM, Tikkanen R, Fields K, Williams RD III. Mirror Mirror 2021: Reflecting Poorly. New York, NY: The Commonwealth Fund; 2021. Accessed April 14, 2022.
  2. Poisal JA, Sisko AM, Cuckler GA, Smith SD, Keehan SP, Fiore JA, Madison AJ, Rennie KE. National health expenditure projections, 2021–30: growth to moderate as COVID-19 impacts wane. Health Affairs. 2022;41(4):474-486.
  3. Shrank WH, Rogstad TL, Parek N. Waste in the US health care system: estimated costs and potential for savings. JAMA. 2019;322(15):1501-1509.
  4. Alfonso YN, Leider JP, Resnick B, McCullough JM. US public health neglected: flat or declining spending left states ill equipped to respond to COVID-19. Health Affairs. 2021;40(4):664-671.
  5. Baicker K, Obermeyer Z. Overuse and underuse of health care: new insights from economics and machine learning. JAMA Health Forum. 2022;3(2):e220428.
  6. Baciu A, Negussie Y, Geller A, et al. The State of Health Disparities in the United States. Washington, DC: The National Academy of Medicine; 2017. Accessed April 14, 2022.
  7. Mahajan S, Caraballo C, Lu Y, et al. Trends in differences in health status and health care access and affordability by race and ethnicity in the United States, 1999–2018. JAMA. 2021;326(7):637-648.
  8. McClellan M. Reforming payments to healthcare providers: the key to slowing healthcare cost growth while improving quality. Journal of Economic Perspectives. 2011;25(2):69-92.


Kadakia KT, Offodile AC. The Next Generation of Payment Reforms for Population Health – An Actionable Agenda for 2035 Informed by Past Gains and Ongoing Lessons. Milbank Q. 2023;101(S1): 866-892.