Increasingly, physicians are paid, not just for the actual care they provide, but for the quality of that care. At least, that's the idea behind Medicare's Value Based Payments program. But Rooke-Ley and his colleagues at the Center for Advancing Health Policy through Research (CAHPR) argue that this approach isn’t as good as it sounds. In fact, they say it has increased the cost of health care instead of controlling it.
Humans in Public Health sat down with Hayden Rooke-Ley, a senior fellow in Health Services, Policy and Practice in the Brown University School of Public Health, to discuss how we pay doctors and control health care costs. He co-wrote A New Medicare Agenda with Professor Andrew Ryan, director of the Center for Advancing Health Policy through Research at Brown.
Could you walk us through the main ways the U.S. has paid for healthcare over the years—the journey we've taken to get where we are today?
Hayden Rooke-Ley: Sure. About 50 years ago, the system was pretty straightforward. Doctors were paid each time they did something. If you went in for an office visit, the doctor got paid a set amount for that visit.
Like going to a grocery store—there’s a price on the shelf, and that’s what you pay. So if you came in for a physical, your doctor got paid the same amount every time?
Exactly.
But not everyone liked that “fee-for-service” approach. Critics said it encouraged doctors to order more and more tests and procedures, which drove up costs. So in the 1980s, we tried something new.
Right. Policymakers began to think about how providers could take on a role in managing costs—a kind of financial risk function—rather than just being paid for each service they delivered.
That’s where “managed care” came in. Doctors and insurers had to weigh not only what care was needed, but what care made financial sense. But cost-saving measures like needing pre-approvals or limiting your choice of specialists really upset patients.
Yes, there was a backlash in the 1990s. Interestingly though, in public programs, like Medicare and Medicaid, we doubled down on managed care principles.
So while people with private insurance didn’t want anything to do with managed care, the government kept using those techniques in Medicare and Medicaid. Eventually, this evolved into a new version of managed care called "value-based payments."
Can you explain how value-based payments differ from managed care? Why are they considered the new solution for controlling costs?
Sure. Instead of just paying providers for each service, Medicare began adjusting payments based on a provider’s ability to manage total costs and meet certain quality benchmarks.
So a better-performing doctor or hospital—based on quality metrics—would get paid more, not just for doing more?
Exactly. It wasn’t just about quality either. Providers were also expected to manage overall costs, taking on financial risk for their patients’ care.
So providers now have to prove to the government that they’re hitting lots of different benchmarks. Hospitals have to prevent patients from coming back to the ER right after surgery, nursing homes have to keep staff from turning over, and everyone has to show they’re being cost-effective.
But in your editorial in JAMA, you argue that value-based payments aren’t the right solution. Why not?
The whole theory behind value-based payments and managed care is that better financial incentives will lead providers to keep people healthier and reduce the need for care. But we think that’s the wrong focus. The U.S. doesn’t really have a utilization problem—we don’t necessarily overuse care compared to other countries.
What really drives our high healthcare spending are two things: much higher prices than in peer countries, and massive amounts of private sector administrative waste. Value-based payments don’t tackle either of those core issues.
So even if doctors were perfectly motivated and got paid extra to do the right thing, healthcare would still be expensive—because prices themselves are too high?
That’s right. And value-based care also assumes that primary care doctors will act as gatekeepers to control costs, as if the only thing holding them back is the lack of proper incentives. But I don’t think that’s true. And even if they wanted to manage costs, they’re limited because the underlying prices are still driving spending growth.
And the system itself adds cost, right? You need administrators, data collection, all these systems to track quality and performance—it’s expensive just to run the value-based care model.
Exactly. For an independent provider, it’s a huge burden. They’re expected not only to deliver care but to act like a small insurance company—managing financial risk and meeting dozens of quality metrics. That’s a lot to ask, especially for smaller practices.
Which makes it easier for venture capital or private equity to swoop in and buy up practices. These small providers get overwhelmed, and suddenly there’s an opportunity for someone more focused on profit than patient health.
That's right. So again, if we are thinking about whether a community health center or a clinician led practice down the street, a mom and pop shop, can function when we impose these sorts of difficulties on them, they need capital and administrative support. So I don't think it's a coincidence that we've seen various forms of private capital flood in to essentially help these practices try to operate in these programs, whether it's venture or private equity backed conveners or consultants or other sorts of corporate entities that assist practices and take some sort of a fee for it, or whether it's larger corporate entities like hospitals or insurance companies just acquiring the practices.
So, instead of asking health care providers to keep track of all of this data and take on the financial risk of caring for their patients, you argue that the government should do something simpler: reduce how much it pays for medical care.
We need a much more updated and revolutionized approach to correctly pricing services to ensure that we are managing the healthcare system efficiently and we're paying the correct amount for every service that is delivered.
But how do we actually make that happen? Getting the government to control prices in this political climate seems like a tough sell.
Just to be clear, the government already sets prices in Medicare and Medicaid. And there’s a long history of states playing a role in pricing policy for private insurance, too. Recently, states like Vermont, Oregon, and Indiana have started capping how much hospitals can charge. What we’re calling for is to build on that movement and bring it into Medicare.
But in healthcare, a cost cut for one group means lost income for another. Hospitals here in Rhode Island, for example, say they’re losing money already.
That’s part of the challenge. Our pricing system has built-in distortions that encourage hospital consolidation and overpayment. Take site differential payments—there’s wide agreement that those are excessive. Fixing issues like that would reduce revenue for some hospitals or insurers. But those are the tough choices Medicare and Congress need to make, instead of outsourcing them to private companies that aren’t doing a great job.
So value-based payments are kind of like the government passing the buck—letting providers and insurers make the hard decisions instead of doing it themselves.
Exactly. If we’re serious about improving the system and making healthcare more affordable, we need to take responsibility for how money flows through it—and make the hard decisions about where it should go.
You and Professor Andrew Ryan, your co-author, have some suggestions—like standardizing payments for surgeries regardless of location, rethinking how procedure costs are calculated and reducing the influence of lobbyists. But at the core, you’re suggesting we return to fee-for-service.
Our fundamental argument is that the fee for service system has been villainized. It is so commonplace to hear that the core problem of our healthcare system is that we have a fee-for-service system, and people then immediately launch into all these arguments we've discussed, that the fundamental issue is that providers have the wrong economic incentives, and therefore they are not delivering good healthcare that manages costs and keeps patients healthy, and that's because of the fee-for-service system. And the premise of our argument here is that that's actually not the case.
Most countries actually around the world have some version of fee for service. So this is not an uncommon mechanism of governing a healthcare system. In fact, it's the most common one. And the idea that we are going to solve our problems by trying this managed care solution and value-based payment solution, where we have these private sector entities taking on this function of managing care and not doing fee for service, we find is highly implausible to actually solve this problem of spending too much in our system. And that for once getting the fee for service system right, actually committing to it, is a much more promising path to delivering the type of healthcare system we want see.
I hope so! Hayden Rooke-Ley, thanks for coming in.
Thanks so much for having me.