The need to change the rate at which health care costs increase (“Bending the Curve”) is axiomatic in the health reform debate. According to the President, Orszag at OMB, Hackbarth at MedPAC, and others, primary tools for this change are payment system changes. While the testimony that has been given in this regard is useful directionally,  the organizations and systems thus far identified are largely at a gestational stage and we do not know whether they are far reaching enough to “move the needle” much less “bend the curve”.

Seemingly the most fully developed of these notions is the proposal to bundle payment for the majority of facility services occurring within 30 days of a discharge into the DRG. The need for such a proposal was recently revalidated in a New Journal of Medicine article identifying the frequency and high cost of hospital readmissions. Moreover, the CBO and the President’s budget have at least put savings estimates around this program. These estimates are substantial but do not, by themselves, bend the curve materially.

Other emerging notions of delivery system innovation to bend the curve include “bonus eligible organizations” and “accountable health organizations”. These innovations return us to familiar, but largely abandoned in practice, managed care territory — incentivization of physicians outside a group practice setting. Of course the success of such programs will depend on the strength of the incentive and that strength (as we learned in IPA model managed care) will be affected by the size of bonus or withhold, the timing of its payment, whether the data is believable and whether the opportunity to collect it is perceived by the physician to be real. Also, the real savings these organizations might achieve will be in lowering the “preference sensitive” care that is subject to wide geographic variations.


Full fledged capitation had potentially the strongest (most effective?) incentives. However, “capitation” carries a lot of media and political baggage so the term is being studiously avoided.  That political reality is understandable.  However, before we count our budgetary savings, we need to be sure that the alternative methods of payment sufficiently change physician incentives before we can realistically expect to “bend the curve” and can fairly claim the budgetary savings such a change would bring.