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February 15, 2022
David W. Johnson
Economics Outcomes Policy
4-Minute 4sight Blogs Dispatches

It’s The Payment Models, Stupid! Part 1: Maryland Leads The Way

On February 9th and 10th, Health Affairs published a two-part article by Zeke Emanuel, Merrill Goozner, Matt Guido and me on Maryland’s unique payment model and its potential applicability to other states. (Part 1, Part 2) For reasons that will become obvious, we took inspiration from an extremely influential 2003 Health Affairs commentary with the provocative title, “It’s the Prices Stupid.”

Written by legendary healthcare economist Uwe Reinhardt and three other authors, the commentary’s full title is “It’s the Prices, Stupid: Why The United States Is So Different From Other Countries.” Out of 6,000+ published articles, this commentary has achieved the magazine’s seventh-highest all-time attention score. The article was influential because it explained U.S. healthcare’s aberrant cost structure in clear, painstaking detail.

Reinhardt and his fellow authors examined healthcare spending data from thirty affluent countries for the year 2000. Even though use rates for healthcare services among these countries were equivalent, the authors’ detailed analysis revealed that the U.S. spent far more per capita on healthcare expenditures.

Then as now, following the money revealed healthcare’s inner workings. Contrasting spending and use rates, the authors logically concluded that higher U.S. prices for healthcare goods and services largely determined America’s higher per capita healthcare expenditures.

In 2000, healthcare expenditures constituted 13% of America’s GDP and per capita health spending was $4,631. In 2020, those figures had skyrocketed to 19.7% and $12,530 respectively. Remarkably, the cost gap between the U.S. and other affluent countries has widened during this period. Why? The answer is still higher prices, but context is important.

Differential prices for identical services are a unique and deviant feature of U.S. healthcare. Payment models create the mechanisms through which providers set these differential prices. Current payment models deliver high costs and subpar health metrics. More of the same approach will yield more of the same dismal results. America will not change the way it delivers care until it changes the way it pays for care.

Maryland is the only state in the nation that has instituted widespread payment-model reform to promote value-based care. Maryland’s all-payer model pays providers uniform rates for specific treatments within predetermined global budgets. Unlike other payment reform initiatives, Maryland’s approach is working at scale. It is delivering better outcomes, lower costs and higher quality.

Part 1 of our article details the history and performance of Maryland’s one-off approach to payment reform. At almost 2,000 words, “Meaningful Value-Based Payment Reform: Maryland Shows the Way” is a long article, but it’s worth the effort to read. Understanding the mechanics of Maryland’s payment model provides valuable perspective for understanding and assessing large-scale payment reforms.

Getting payment reform right is THE essential requirement for transforming America’s broken healthcare system. Incremental improvement on broken payment models is a recipe for policy failure. With fundamental payment reform, like Maryland’s, delivering great care to all Americans without breaking the bank is possible.

If Uwe Reinhardt were still alive, I believe he’d agree with my fellow authors and me that “it’s the payment models, stupid” that require overhauling. If we’re right, perhaps our article will receive a sky-high attention score like Uwe’s did. That would be classic!

Read Part 2: Meaningful Value-Based Payment Reform: Expanding The Maryland Model To Other States

Read all dispatches from Dave Johnson here


About the Author

David W. Johnson

David Johnson is the CEO of 4sight Health, an advisory company working at the intersection of healthcare strategy, economics, innovation. Johnson is a healthcare thought leader, keynote speaker, and strategic advisor to organizations busting the status-quo to reform our healthcare system. He is the author of Market vs. Medicine: America’s Epic Fight for Better, Affordable Healthcare, and his second book, The Customer Revolution in Healthcare: Delivering Kinder, Smarter, Affordable Care for All (McGraw-Hill 2019). As a speaker, Dave plays the role of rebel, challenger, industry historian, investor and company evaluator to push audiences forward. (Watch bio video.) Johnson applies his 25+ years of investment banking in healthcare to identify ways the healthcare industry must change to deliver better care. He received a Masters in Public Policy from Harvard Kennedy School, an English degree from Colgate University, and served in the African Peace Corp service. Join over 10k+ healthcare executives who read our weekly insights and commentary on www.4sighthealth.com.

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