In order to better understand Payment Reform strategies and how they can positively influence health care purchasing, let’s begin by explaining how health care is typically delivered. On a basic level, the traditional health care model utilizes a fee-for-service payment methodology where physicians are paid based upon the quantity of patient treatments and referrals, which means there’s a fixed focus on volume – not value – of services provided.

The Fee-for-Service Problem

The problem with fee-for-service payments is they can possibly conflict with the physician’s sense of duty in providing treatment options that are in the best interest of the patient; what’s minimally necessary (and minimally invasive) may not always coincide with producing a profit.

Additionally, fee-for-service makes it nearly impossible to understand the price of a procedure – which can vary wildly between different providers – and the quality of services rendered. There is no correlation between cost and quality, so the adage “you get what you pay for,” isn’t applicable to buying health care.

How Are Alternative Payments Better?

Payment Reform strategies then, can be described as implementing an alternative payment model that aligns financial incentives with that of the patient’s. In other words, these non-traditional payment methods intend to “free” the provider to give the truest, most accurate care for the patient because it benefits both parties.

The “win-win” situation that a performance-based model of payment creates is why Payment Reform is a core driver of The Alliance in delivering High-Value Health Care to employers and their employees, and we’re executing Payment Reform on two fronts: inconsistencies in price and quality measurement.

The Alliance’s Payment Reform Strategies

Reference-Based Contracting by The Alliance

In regards to price, it’s important to set a benchmark for purchasers to compare costs between different providers. In our CEO’s words, “you can’t manage what you can’t measure.”

That’s why The Alliance uses Reference-Based Contracting – which standardizes prices based on a percentage of Medicare – in over 80% of our contracts. This price transparency enhancement not only allows the health care consumer to make smarter decisions, but it also produces a more competitive market in terms of price.

Bundled Services

The Alliance contracts with multiple providers who have agreed to bundle common surgeries and tests into a single, manageable price. These services typically require various medical personnel and equipment to treat the patient, and consequently, are billed as separate line items which make it difficult to compare prices between providers. Bundled pricing packages all of those services into one comparable price – which helps defend against surprise billing.

Quality Path

Of course, Payment Reform is more than just about dollars. It’s just as important to measure the quality of the treatment as it is the price, which is the idea behind our QualityPath program – to help patients find high-quality doctors, hospitals, and clinics for select surgeries and tests.

Whether it’s an MRI or CT scan, or a total hip or knee replacement, QualityPath enables consumers to receive higher quality care at a better price with a guarantee; all patients receive a warranty on their care if it results in further treatment due to complications. This program raises the bar on quality, and forces providers to share the burden associated with the cost of these procedures.

Alternative Payments Based on Capitation

The Alliance strives for a future where all health care is bought and paid for through methods that are simple, transparent, and predictable – a fixed price based on the amount and/or risk of enrollees using a per person, per period-of-time fee schedule.

This payment method not only advocates for better price transparency, but because a patient pays their share regardless if they used the care or not, they’re more inclined to seek care when they believe they need it. In doing so, this model controls both cost and health outcomes, because as more patients seek primary-level care sooner, they rely less on expensive (and invasive) surgeries, specialists, and ER visits. 
Our new Direct Primary Care clinic will use a capitation-like payment method, where employers pay a monthly payment per patient, but only if that patient uses its services.

If you want to learn more about how utilizing Payment Reform strategies, like alternative payment methods, can work in your favor – contact your Account Executive.

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Kyle Monroe

Kyle Monroe

Former Vice President, Network Strategy & Value Measurement

Kyle Monroe joined The Alliance in 2017 as vice president of network development and provider relations. His responsibilities included creating and maintaining relationships with health systems and providers to support The Alliance’s strategic goals of improving health care value and organizational growth.

Read more blog posts by Kyle