What’s Standing in the Way of Healthcare Payment Reform?

The way healthcare is paid for is one of the most powerful levers shaping the future of the industry. Reimbursement structures determine which treatments are offered, how clinicians spend their time and even which innovations make it into everyday practice.

As value-based and alternative payment models gain traction, there is growing potential to move beyond fee-for-service incentives that reward volume over quality. Yet despite progress, significant challenges persist. During the Digital Medicine Society’s Healthcare 2030 Summit in Washington, D.C. last week, healthcare leaders discussed the fundamental problems they think are preventing alternative payment models from reaching scale and achieving success.

Many new payment models are struggling to balance risk with adequate support, which leaves some providers wary. There are also gaps in interoperability and standardized quality measures that can hurt the success of even the most well-intentioned programs.

Make models mandatory

CMS’ current value-based care models are voluntary, which puts health systems in a position where they can choose to participate only when they expect to save money, said Lee Fleisher, CEO of Rubrum Advising and former chief medical officer and director of CMS’ Center for Clinical Standards and Quality. To illustrate this, he recalled his time as chair of anesthesiology at Penn Medicine, during which he ran managed care contracting.

“We would only join models in which we would win — because we were a big center that could calculate that and never join models in which we would lose. If you game the system that way, you’re never going to get to value-based care, as we call it. Therefore, you need to mandate that people be in the models,” he declared.

Fleisher noted that the Trump administration appears to be taking steps toward this goal.

For instance, in April, President Donald Trump issued an executive order directing the CMS Innovation Center to develop a mandatory payment model aimed at improving Medicare’s ability to obtain high-cost drugs that aren’t already included in the Medicare Drug Price Negotiation Program. 

Fix the incentive problem

Misaligned incentives are another key reason that value-based care is failing to reach true scale, noted Nate Paulsen, vice president of payer strategy and growth at Oshi Health, which targets costly GI conditions with virtual care.

Commercial insurance profits are tied to medical loss ratio, which means payers benefit when overall healthcare spending goes up. To achieve meaningful progress, profitability must be decoupled from spending growth, Paulsen argued.

“When your profitability is tied to 15 cents on the dollar, the fastest way to grow your profitability is to grow the number of dollars spent. Changing that incentive, and disconnecting that, I think is really critical,” he remarked.

He pointed out that payers control most of the cash flow within healthcare. Since all funds — whether from CMS, employers or states — flow through insurers, their incentives are central to whether cost savings and value-based care efforts succeed, Paulsen explained.

Simplify metrics

In addition to misaligned incentives and the lack of mandated models, metrics are an issue as well. There seems to be too many measures and not enough progress, pointed out Mona Siddiqui, senior vice president of home and community care at Highmark Health — the Pittsburgh-based parent company of Highmark, a payer with more than 7 million members, and Allegheny Health Network, a health system with 14 hospitals.

“If we look at 30 years ago versus now, and we look at the number of measures that are out there that we have a report on, the cost of care has increased at a steady clip in that time period, access has decreased during that time, and patient satisfaction has decreased during that time. I’m not sure that measurement is the way to go,” Siddiqui declared.

For instance, providers are often tasked with tracking metrics like percentage of patients who received a flu shot, percentage of diabetic patients with annual eye exams, percentage of heart failure patients given discharge instructions and smoking cessation rates. Not only is it incredibly time-consuming for clinicians to continually measure these metrics, but these measures also typically fail to capture whether patients are actually healthier or more engaged in their care. Siddiqui believes that more basic patient access metrics — like the total cost of care and patient satisfaction scores — should be sufficient. 

She added that she is puzzled about why this isn’t being discussed more amongst healthcare leaders.

“It feels like we’ve created an enormous burden on the system without anybody being happy about it. It’s not a system that’s done well by patients. It’s not a system that’s done well by the regulators. I just think we have to get back to the basics and have people focus on the things that are really important,” she stated. 

Fleisher agreed with Siddiqui, saying partly in jest that he blames the “quality measure industrial complex” for all the unnecessary metric tracking. 

Organizations including CMS, National Committee for Quality Assurance, The Joint Commission, state Medicaid quality programs and commercial payers have established standards requiring providers to track copious metrics related to screenings and medical codes — but little attention is paid to patient engagement metrics, Fleisher pointed out.

He said it’s a shame that healthcare providers don’t measure patient engagement — given how strongly engagement correlates with improved patient outcomes and lowered costs.

The current system focuses heavily on what’s easy to quantify rather than what truly matters for patients, Fleisher added.

Employers must use their voice

Employers have to remember that they also play a critical role in bending the cost curve and generating better outcomes, said Jonathan Taylor, vice president of health solutions at professional services firm Aon.

Two of the most important things employers can do is encourage employees to take more responsibility for their health by incentivizing personal accountability, he noted. Too many employees don’t engage with the healthcare system until a crisis occurs, which typically results in a high-cost care episode, Taylor explained.

By promoting primary care appointments, preventive health screenings and healthy everyday behaviors, employers can help reduce expensive emergencies and improve population health, Taylor stated.

He also said employers’ human resources departments need to be empowered to run their healthcare offerings like a business.

“Healthcare is the second largest expenditure for any company behind payroll,” Taylor pointed out.

Healthcare costs are rising annually, he added. Experts predict employers’ healthcare expenditure will surge by 9-9.5% next year, marking the biggest increase in 15 years.

That growth compounds year after year and eats up employer budgets.

If employers increased their employees’ wages by 10% every year, businesses would consider it impossible — but that’s exactly what happens with payers’ premium increases, Taylor remarked.

Employers have two options. The first is to pass the full increase on to employees.

For example, an employer could tell a worker, “Congrats, here’s a 3% raise, but your insurance premiums are going up 10–15%.” This leads to employee dissatisfaction and turnover, Taylor explained. 

The other option is to absorb some of the increase as a company — such as passing on only 5% to employees instead of 15%. However, that still raises business costs and cuts into profitability.

Either way, it’s unsustainable, Taylor declared.

In his view, employers should give HR leaders the authority and tools to manage these costs strategically. Too often, HR just accepts the payers’ renewal rates and then figures out how to deal with the fallout later, Taylor said.

He thinks HR could take a more proactive role, treating healthcare spending like a major business decision rather than just an administrative function. That means managing vendor contracts aggressively and seeking out innovative models of care delivery to control costs, he remarked.

If healthcare leaders want alternative payment models to succeed, experts agree that the time for half-measures is over. Consistent employer engagement, mandates, better incentives and reduced administrative complexity could determine whether value-based care ever scales.

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