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Payments in Support of Effective Primary Care for Chronic Conditions

The Issue

In a previous article, the authors suggested that a system for reimbursing primary care practices that combines a single comprehensive fee with performance-based bonuses could promote better health care as well as cost control. In this Commonwealth Fund–supported article, the authors suggest that “bundled payment” covering all services provided to a patient for treatment of a specific illness or injury would need to be risk-adjusted, so that providers do not have incentives to avoid patients, like those with chronic illness, who can be expected to have higher costs.

What the Study Found

The researchers used Capital District Physicians’ Health Plan, a nonprofit network-model HMO in New York, as a test case. In January 2009, the plan launched a pilot program in three primary care practices where providers received bundled payments, adjusted to account for patients’ level of risk and supplemented by substantial performance bonuses. The practices had begun work to become medical homes during the previous year.

With estimated savings of $8 dollars per member per month during the first two years, the pilot is now being extended to 350 providers. It is a “virtual all-payer” pilot—the new payment system applies to all patients in participating practices, not just those for whom the health plan accepts financial risk. The health plan continued to process fee-for-service payments from outside insurers such as Medicare and Medicaid patients, but paid providers solely through the new payment model.

The authors discuss the practical structures needed to support this approach, including three key administrative functions: a sponsor, which provides start-up funds to support practices’ transition to medical homes and covers any shortfalls; an administrator, which manages financial and data processing tasks; and a medical home consortium, which provides a governance structure for the sponsor, participating practices, and payers.


Risk-adjusted bundled payments are feasible in primary care settings in both the single-payer health systems of Scandinavian countries as well as in the U.S. multipayer health system.

Publication Details



R. P. Ellis and A. S. Ash, “Payments in Support of Effective Primary Care for Chronic Conditions,” Nordic Economic Policy Review, 2012 2:191–210.