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Follow the Money: Payment Reform as the Key to Health Reform

The flow of money is the key to health care. Rather than paying less for health care, we should pay more wisely by encouraging providers to do more of what they should be doing and less of what is wasteful. In this AARP Public Policy Institute Issue Paper about the role of money in medicine, Dr. Cutler advocates improving the quality and efficiency of health care through the use of incentives that orient reimbursement toward health improvement, rather than just paying for services provided.

Compensating physicians for the quality of the services they perform can limit the incentives for overused care while increasing the incentives for prevention. Paying smarter for care by paying for performance rewards the provision of good care over bad care, and offers the potential for great improvements in the value of medical care, significantly better health outcomes, and perhaps lower spending.

The health care system can be improved by...

  • linking payment for care to quality improvements
  • investing in health information technology
  • encouraging regional collaboration among providers and payors to improve quality
  • rationalizing patient cost sharing to reflect clinical needs

The author is the Otto Eckstein Professor of Applied Economics and Dean for the Social Sciences of Harvard University, and based his PPI 20th Anniversary Invitational Lecture* on this essay. (28 pages)

*The Twentieth Anniversary Invitational Lecture Series was supported in part by a generous bequest made to the AARP Foundation.

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