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Health Care Payment Innovation Widespread in California


With all the attention paid to the launch of the Affordable Care Act’s health insurance exchanges and the challenges with, many health care experts recently overlooked good news coming out of California: health care purchasers in the Golden State lead the nation in adoption of innovative methods to pay doctors and hospitals for the care they deliver. Across the country, most providers are still paid through pure fee-for-service arrangements — earning money for each unit of care they deliver, regardless of appropriateness or outcomes and without incentives to conserve resources. Last March, The National Scorecard on Payment Reform, released by the nonprofit Catalyst for Payment Reform (CPR), revealed that nationwide, only 11 percent of health care payments are value-oriented, defined as payments tied to performance or designed to cut waste. CPR’s California Scorecard on Payment Reform, released this fall, found that in California 42 percent of commercial payments to health care providers are value-oriented. Both scorecards were supported by The Commonwealth Fund and the California HealthCare Foundation.

The California Scorecard found evidence of widespread health care payment innovation across the state. Within the 42 percent of value-oriented payments, nearly all — 97 percent — put providers at financial risk if they do not meet certain quality and cost goals. These include capitation (per-patient) payments with a quality component. California has a much higher percentage of payments to doctors and hospitals flowing through capitation with quality benchmarks than does the nation as a whole (32.5 percent versus 1.6 percent). California also has a larger percentage of commercial, in-network health plan members considered to be attributed to health care providers participating in alternative payment contracts (patients are “attributed to” providers for the purpose of calculating costs and savings), including accountable care organizations, patient-centered medical homes, and other delivery models. In California, 36 percent of commercial health plan members are attributed, compared with 2 percent nationwide. This isn’t a huge surprise, as California has long been home to organized and integrated delivery models.

Yet the prevalence of value-oriented payment reforms in itself is not the goal. Changing how we pay for care to reward value, not volume, should make care more affordable and improve quality in the long term — this was one of the founding principles of Catalyst for Payment Reform. In these two dimensions, California still has opportunities for improvement. Although the state’s per capita health care spending is the ninth-lowest in the nation (according to a 2012 California HealthCare Foundation publication), the employer premiums are higher than the U.S. average. Likewise, California has mixed results on some basic metrics of health care quality. For instance, although Californians are more likely than U.S. residents nationally to receive cancer screenings and less likely to die from cancer, they are less likely to receive appropriate diabetes care (see the 2011 report from the California HealthCare Foundation).

To address these broader goals of affordable and quality care, we need to continue to examine how to refine the new methods of payment, and what else may be needed. For instance, it is possible that value-oriented payment methods such as capitation with quality benchmarks might encourage providers to reduce the cost of providing health care — without making care more affordable for patients. An article in Health Affairs hinted that providers' market power in California allows them to negotiate higher-than-competitive prices, regardless of their underlying health care costs. Other news stories have suggested that some of the state's larger systems engage in “shadow-pricing,” pushing premiums higher to follow competitors' pricing, regardless of the actual costs of delivering care. It is also possible that capitation with quality benchmarks — the dominant form of value-oriented payment in California — isn’t the best way to achieve better health outcomes. Or maybe the quality incentives aren't large enough to have an effect, or need additional nonfinancial incentives to work optimally.

Going forward, Catalyst for Payment Reform will investigate how to examine the real return on investment of different forms of provider payment. One large question, which has not yet been examined, is how different forms of payment affect the quality of care in the long term. With so many new payment models emerging, now is the time to begin to understand which models work best for payers and for patients. It is important to quantify how California has made such significant use of value-oriented payment. Now we need to understand how these payments align with efforts to boost health care quality and affordability.

Publication Details



A. Caballero, Health Care Payment Innovation Widespread in California, The Commonwealth Fund Blog, December 2013.