Altarum's Private Insurance Research Collection

Commissioned Research

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Advancing Population Based Payment, Michael Chernew, Harvard Medical School

Payment reform is central to health care system transformation.  Specifically, the incentives in a fee-for-service (FFS) payment system lead to higher spending and discourage delivery systems from efficiency enhancing innovation.  Population based payment (PBP) models, in theory, improve incentives by allowing the delivery system to share in savings from any efficiencies they generate but these payment models could lead to stinting on care and greater health inequity.  Given the theoretical appeal of PBP, and the general dissatisfaction with FFS, payers in all market segments (Medicare, Medicaid, and Commercial) have been developing PBP models.  Yet despite widespread optimism that changing incentives would dramatically lower spending (given the belief that up to 30 percent of spending is wasteful), evaluations of PBP models have been disappointing, particularly in the public sector.  When it is interpreting these results, it is easy to forget that they reflect the specifics of each ACO program and that the details of each program vary.  There is heterogeneity across programs in key parameters such as how benchmarks are set and updated, how much risk is imposed and how attribution and risk adjustment work.  This heterogeneity can affect performance. In this project we will use theoretical insights and lessons from the empirical literature to develop recommendations for the design of ACO programs in all segments. 7/1/18 – 7/14/19