Reforming Provider Payment—The Price Side of the Equation

It’s pretty basic economics: spending equals price times quantity. For some time, public health care payers, such as Medicare and Medicaid, have focused much of their cost-containment effort on constraining the prices they pay for health care services, which they set administratively. The Affordable Care Act includes additional constraints on Medicare prices as an important source of savings. But public payers recognize the limits of this strategy and hope to develop better methods of paying providers—such as bundled payment for episodes of care and payments to accountable care organizations (ACOs) and patient-centered medical homes—that will create incentives for treating patients using services more efficiently.

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