Reimbursement: Understanding How We Pay for Health Care

American health care costs have now grown to encompass 20 % of our gross domestic product, and efforts at slowing this growth have been largely unsuccessful. The need for payment reform is clearly more critical now than ever before. Though payment in the United States has been historically grounded in fee-for-service models, many organizations have begun to test new systems for reimbursement to attempt to curtail spending. In this chapter, we address the history and shortcomings of the fee-for-service model in the United States and describe reforms that have been undertaken to address these issues. Important historical developments described in this chapter include the introduction of diagnosis-related groups by the Center for Medicare and Medicaid Services (CMS) in the 1980s as well as the rise of strategies including pay for performance, capitation, and nonpayment for preventable complications of care. Models that have been introduced more recently include accountable care organizations (ACOs) and payment bundling. The goals of these emerging models include the following: (1) lowering health care costs, (2) increasing alignment between payment and the provision of quality care, and (3) improving incentives to deliver high quality care. The chapter concludes with a discussion of the effect of payment reform on future physician practice.

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Author information

Authors and Affiliations

  1. Boston VA Medical Center, Harvard Medical School, and Merck and Company, Boston, MA, 02115, USA Sachin H. Jain M.D., M.B.A.
  2. Department of Internal Medicine, Brigham and Women’s Hospital, Boston, MA, 02115, USA Elaine Besancon M.D.
  1. Sachin H. Jain M.D., M.B.A.