The Payment Reform Landscape: Benefit And Network Design Strategies To Complement Payment Reform

For the past ten months on Health Affairs Blog, we’ve been discussing the evidence for different models of payment reform, examining everything from pay for performance to nonpayment. But no discussion of payment reform is complete without addressing benefit and network designs and how they can help or hinder various payment reforms.  When the right payment method is paired with the right benefit and/or network design, they can work together to help reduce costs and improve care.  There are a number of payment approaches that pair well with specific benefit and network design strategies to yield higher-quality, lower-cost care. Below we discuss a few of these effective pairings.

But before we get into the specifics, why it is important to motivate providers to deliver and patients to seek higher-value care?  Health care providers may not only respond to direct financial incentives, but they are also likely to respond to knowing information about their performance is being put in front of prospective and current patients.  They also may be more willing to accept new forms of payment if acceptance means payers will encourage more patients to seek their care.

On the flip side, patients are unlikely to know how their providers are paid.  But if motivated (financially and otherwise), patients may act on meaningful distinctions in price and quality by choosing higher-value providers, saving money for themselves and whoever else is footing the bill for their care.
Reference pricing and bundled payment

When using reference pricing, a payer or purchaser establishes a maximum amount they will pay – or standard price – to serve as a reference point for patients.  Reference pricing can be applied to drugs, services, or bundles of services.  A reference pricing program typically requires plan members to pay any amount above the reference price. The hope is that the “reference price” sends a signal to providers about what price is reasonable and makes patients sensitive to the price of services in turn, steering them toward more cost-effective providers.

It is also imperative that consumers have information about the quality of different providers, particularly for complex procedures where price and quality can vary significantly. CalPERS has successfully used a reference pricing strategy to save millions on joint replacements for its members; this success has been well documented in Health Affairs.