day one project

Rethinking Payment for Prevention in Healthcare

01.08.21 | 2 min read | Text by Maria Alva


Prevention plays a crucial and underappreciated role in our health system. To improve health outcomes and bring down costs, it will be important to establish a better balance between preventive measures and drug treatments. The next administration should provide incentives to healthcare providers that scale up—and reduce costs of delivering—preventive interventions with demonstrated efficacy. Currently, the U.S. Department of Health and Human Services (HHS) sets broad standards regarding managed care contracts. But states have considerable latitude. States can set income eligibility criteria, define services, and set alternative payment methods with Managed Care Organizations (MCOs). And in just the last few decades, Medicaid programs have been almost fully privatized: MCOs now cover over 85% of the Medicaid population. Because of the existing patchwork of insurance programs and state rules, it is important that regulations set minimum national standards to ensure that health care is accessible and affordable for those who need it the most. Particularly important to this effort are non- distortionary prices and reimbursement policies.

For a few decades, policymakers have, with bi-partisan consensus, moved away from a fee-for-service (FFS) system whereby providers are paid for service delivery and toward capitation and pay for performance (p4p) models. While these models offer significant improvements over FFS models, each involves risks of incentivizing non-optimal care and expenditures if they are not structured carefully. When paying capitation rates, bonuses adjusting for population risk alone should be avoided as this incentivizes an increase in diagnoses without necessarily improving care. Either all health care payments should be p4p, or a p4p component should be added to the capitation base. Pharmacological interventions should also be included in the overall provider reimbursement structure to align reimbursement incentives with health outcomes. Healthcare providers will then determine the right mix of services. Furthermore, while p4p is generally a good idea (i.e., hospitals and MCOs are rewarded for decreasing the number of avoidable hospital readmissions), if this metric is not applied homogeneously across all services, this payment structure significantly hampers the provision of preventive services.