How Can Health Care Pay for Better Outcomes?

TL;DR

The United States should shift health care payment from fee-for-service, which rewards services performed, toward value-based care that rewards better health outcomes. The transition is difficult because compensation, infrastructure, incentives, data, and reporting were built around service volume, but successful models suggest that higher quality, lower costs, stronger patient satisfaction, and sound financial performance can coexist.

Transcript

welcome everyone to today's super associates meeting i'm mark duggan the director of cpr the stanford institute for economic policy research and it's really an honor to have dr vivian lee with us this afternoon but before we get started and i turn things over to vivian i just wanted to take a moment to reflect on the passing this past weekend of th... Read More

Key Insights

• The central paradox of American health care is that the United States spends two to three times as much per person as other high-income nations while performing significantly worse on many measures, including projected life expectancy for babies born in the country.
• Unequal distribution of health care spending is one reason high aggregate expenditure does not produce uniformly strong outcomes. Access remains unstable for many people, and dependence on employment for insurance became especially challenging when the COVID pandemic disrupted jobs and the broader economy.
• Insurance insecurity remained widespread after the Affordable Care Act improved coverage rates. A Commonwealth Fund survey from the first half of 2020 found that about 43 percent of working adults reported being underinsured or unstably insured, showing that formal coverage does not always provide dependable access.
• The COVID pandemic exposed weaknesses in both health care and public health while increasing the urgency of reform. It also demonstrated the commitment of frontline clinicians, scientists, immunologists, and epidemiologists, and coincided with a record number of students applying to medical school.
• Medicare financing faced mounting pressure during the pandemic. Lee cites Congressional Budget Office estimates indicating that insolvency for the Medicare Part A trust fund, which pays for hospital-based care, moved from a projected 2026 or 2027 date to 2024 after COVID-related effects.
• The core payment problem is that fee-for-service rewards procedures and other activities performed for patients rather than improvements in their health. Lee reports that most colleagues she interviewed identified replacing this payment model as the single most important change needed in American health care.
• Value-based care is designed to pay for better health and outcomes instead of greater service volume. Lee describes the broad goal as bipartisan, even when different groups use different language to express their support for changing how health care organizations and professionals are rewarded.
• The transition to value-based care is difficult because health system infrastructure, compensation, incentives, data, and reporting were constructed to support fee-for-service operations. The conflict can be nearly opposite in practice, since one model may reward more hospitalizations while the other seeks fewer hospitalizations through better care.

Questions & Answers

Q: Why does the United States spend more on health care but achieve worse outcomes?

The transcript identifies a fundamental mismatch between spending and value. The United States spends two to three times as much per person on health care as other high-income nations, yet it significantly underperforms on many measures. One contributing factor is that spending is not evenly distributed across society. Unstable insurance and limited access mean that high national expenditure does not consistently produce better health for the population.

Q: What is fee-for-service health care?

Fee-for-service is a payment model that rewards health care organizations and professionals for activities performed for patients. Its financial incentives are tied to the volume of services rather than directly to better health. Lee notes that this structure can favor more hospitalizations, while a value-based model may seek fewer hospitalizations. Compensation, infrastructure, data, incentives, and reporting have all been designed around this service-driven approach.

Q: What is value-based health care?

Value-based health care is a model in which payment is tied to health and better outcomes rather than simply to the number of services delivered. Its incentives can encourage health systems to prevent avoidable hospitalizations and use resources more effectively. Lee presents the move toward value-based payment as a broadly shared national objective, although different political groups may describe the idea using different terms.

Q: Why is moving from fee-for-service to value-based care difficult?

The transition is difficult because nearly every operational element of established health systems has been designed to support fee-for-service business. Lee specifically identifies infrastructure, compensation, incentives, data, and reporting as areas aligned with service volume. Value-based care can demand an almost opposite direction, such as rewarding fewer hospitalizations instead of more. Reform therefore requires a major organizational transformation, not merely a change in policy language.

Q: How did COVID expose problems with employment-based health insurance?

COVID disrupted employment and demonstrated how dependence on jobs for health care access can leave people vulnerable. Lee cites a Commonwealth Fund survey covering the first half of 2020 in which about 43 percent of working adults reported being underinsured or unstably insured. Although the Affordable Care Act had improved insurance rates, the pandemic and other events pushed progress backward and increased the urgency of addressing unstable coverage.

Q: How did the COVID pandemic affect Medicare financing?

Lee cites Congressional Budget Office estimates showing that the Medicare Part A trust fund, which pays for hospital-based care, was projected before COVID to become insolvent in 2026 or 2027. After accounting for the pandemic and its implications, that projected date moved to 2024. She warns that fiscal pressure could produce broad congressional cuts, making better care models that generate more value from existing spending increasingly important.

Q: Can health systems improve quality while lowering costs?

Lee presents the University of Utah Health experience as evidence that quality, lower costs, patient satisfaction, and financial performance can advance together. During her tenure as dean and chief executive, the integrated health system developed delivery innovations intended to provide higher quality at lower cost with greater patient satisfaction. In 2016, it ranked first among university hospitals in quality and safety according to the recognition cited in the description.

Q: What reform does Vivian Lee consider most important for American health care?

Lee emphasizes changing the payment model from fee-for-service to value-based care. Most colleagues she interviewed for her book gave the same answer when asked to identify the single change they would make. The proposed reform would stop focusing payment primarily on things done to patients and instead reward better health and outcomes, creating incentives for providers to generate more value from the money already spent.

Summary & Key Takeaways

• The central health care paradox is that the United States spends two to three times as much per person as other high-income nations while significantly underperforming on major outcomes. Lee illustrates this gap with life expectancy, noting that a baby born in the United States was projected to live several years less than one born in several peer countries.

• Unequal access helps explain why high national spending does not translate into consistently strong results. Although the Affordable Care Act improved insurance rates, a Commonwealth Fund survey covering the first half of 2020 found that about 43 percent of working adults reported being underinsured or unstably insured, highlighting the risks of linking health coverage to employment.

• Lee argues that payment reform is the most important structural change. Fee-for-service rewards activity, including more hospital care, while value-based care rewards health and better outcomes. Making that shift requires rebuilding compensation, incentives, infrastructure, data, and reporting, but the University of Utah experience indicates that quality, affordability, patient satisfaction, and financial performance can improve together.