The prevailing method of paying for health care — fee for services — encourages more tests and services, writes guest columnist Michael Soman. Payment reform could create similar financial incentives in supporting better care at lower costs

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SOME years ago, a 63-year-old grandmother joined Group Health as my patient. She was on 18 different medications. She came to me dizzy and lightheaded — symptoms that proved to be provoked by a drug interaction. With the help of a clinical pharmacist, we simplified her regimen to six medications. Unfortunately, an ulcer on her ankle, which had not been treated for six months, did not get better. Ultimately, she required an amputation. It felt tragic to me because I knew that good primary care, based in solid evidence, would have prevented her overmedication, and ultimately her amputation.

Physicians seek to act in the best interests of their patients. But most practice in an environment that fails to compensate them for guiding patients to better health — particularly when managing chronic diseases like diabetes, high blood pressure and heart disease. In the United States, 20 percent of the population accounts for 80 percent of the cost of care. Most of these patients have chronic diseases, which can be well managed by primary-care teams supplemented when needed by good specialty care.

But our current payment system — in which the prevailing method is to pay for each office visit, medical procedure or test separately — does not support this model of care. This fee-for-service approach leaves no single doctor, hospital or clinic responsible for the overall health of the patient, or for the costs.

Fee-for-service medicine begets procedures, tests and visits, whether these services are warranted or not. Of the $2.5 trillion spent on American health care this year, 25 to 30 percent represents unnecessary services that expose patients to potential harm.

A fundamental change in how doctors are paid is the only way to achieve the president’s goal of extending health coverage to more people without causing skyrocketing costs. Payment reform is the path to reduce costs while maintaining quality.

The solutions being discussed — electronic medical records, coordinating care between multiple sites and doctors, outreach to patients who need to take better care of themselves — all require financial investment, time and a long-term view, precisely the approach that fee-for-service medicine discourages.

Different approaches to paying doctors can address questions like, “Am I getting better?” and “Is this care rational, affordable and efficient?”

One straightforward method is to create nonprofit organizations with doctors on salary and the incentives to care for the whole patient that come from being responsible for both the financing and delivery of care.

But it is not the only way. Payment reform could create similar financial incentives in supporting better care at lower costs.

Medicaid, Medicare and private insurance could begin to pay primary-care doctors to establish “medical homes” for a group of patients who receive care through their clinic. Medical homes that hit their marks for a defined set of quality goals could receive higher payment rates. Quality measures could include things like the percentage of patients with diabetes who improve control of their blood-sugar levels or the percentage of toddlers who have received all of the recommended immunizations.

Another proposal is to pay for “episodes of care” or make “bundled payments.” The classic example of this is the patient who is released from the hospital but returns within days with complications due to poor follow-up care. Under the proposed method of payment, hospitals would not be paid for the return visit. Payment would instead be based on the successful completion of this episode of care. With this change, an organization is more likely to have a nurse call or visit the patient at home to make sure progress is appropriate.

Over time, payment changes will work to transform the culture of medical care. Doctors will work together and medical systems will invest in delivering care more efficiently. This is essential if we hope to afford expanding coverage to this nation’s 46.3 million uninsured while still providing quality care.

Michael Soman, MD, MPH, is Group Health’s chief medical executive.