Providers need to embrace a new normal in the movement to pay for quality

Healthcare is an economic paradox. On one hand, it's our nation's fastest-growing employer, projected to add 15.6 million jobs by 2022. On the other, high costs coupled with an aging population are breaking budgets.

The root of healthcare's cost dilemma is the fee-for-service system, which pays providers based on the number of office visits, tests or procedures they perform. Because payment is tied to consumption, fee-for-service directly contributes to our spending problem. 

Fee-for-service also creates fragmentation, with providers incented to “compete” with one another, rather than work together for better outcomes. Because providers are rewarded this way, they lack a strong motivation to steer people toward the highest-quality, most cost-effective care, or to ensure patients are monitored across sites in a coordinated fashion—realities that contribute to inefficiency, as well as patient frustration.

But two initiatives point to positive change. First, earlier this year, Medicare announced a goal to shift up to 50% of payments from fee-for-service to a quality-of-care model by 2018. Later, several of the nation's largest health systems and payers announced they intend to move 75% of their businesses into similar arrangements by 2020. Second, Congress this spring enacted the Medicare Access and CHIP Reauthorization Act, which permanently changes the way physicians are paid, holding them accountable for costs, quality and efficiency outcomes, starting in 2019.