Over the last ten years, policymakers of both parties have identified health care payment reform as a critical national priority. Payment incentives offered by Medicare and other large payers create the environment in which providers must choose between being rewarded for performing more services and procedures, as in fee-for-service medicine or, for efficiently managing the cost and quality of care received by their patients in risk-sharing alternative payment models.
By reforming payment systems, we can change the way we deliver care to unlock a world in which health care can be both better and more affordable. But this will not happen on its own. The policy goals of payment reform can only be achieved by maximizing two objectives that are in tension: participation in risk-based alternative payment models and performance in those models. These goals are in tension because Medicare incentivizes participation in those models through financial rewards based on program performance. For example, modifications to the way that the Centers for Medicare and Medicaid Services (CMS) sets financial benchmarks for accountable care organizations (ACOs) can make the program more or less attractive to new program entrants. At the same time, those policy changes also affect the incentives of the ACOs within the program to perform well and reduce spending, which serves to benefit Medicare’s long run fiscal health.