Should We Pay Hospitals for Results or Volume?

Today | 4 min read

Key Takeaways

The fee-for-service model floods the health care system with high-cost care, fragmented experiences and outcomes that don’t always match the price tag.
Instead of paying higher prices for greater volume, we need to align how hospitals are paid with the outcomes they deliver.
Moving hospitals into value-based payment models means evolving toward a system that pays for what works and rewards providers for keeping people healthy.

Hospitals today earn more money from insurers when they provide more services. Hospitals remain a volume-based business. We are trying to change that. Why? Because hospital prices have increased 250% in the last 25 years. And unless we change the trajectory of hospital spending, your insurance costs will continue to become more unaffordable.

We want to pay hospitals based on results, not volume.

Today, hospitals are paid for every scan, test, surgery, procedure or hospital stay, no matter the need or the outcome. The greater the volume of services provided, the greater the payment that’s received.

That means hospitals get paid whether the care is coordinated or fragmented. Whether it was necessary or duplicative. Whether it led to a complication or not.

Today, many hospitals are asking insurers for even higher payment rates — increases that go beyond inflation. But here's the problem: in many cases, what’s being delivered hasn’t changed. The care isn’t necessarily better, more effective or more coordinated. So the question becomes: Should we pay more for more volume, or should we pay more for better results?

We believe patients, families and employers struggling with the rising cost of health care want their money spent on the best possible patient outcomes.

Instead of paying higher prices for greater volume, which invariably get passed along to our customers, we need to align how hospitals are paid with the outcomes they deliver.

The Problem with Fee-for-Service

The traditional payment model creates incentives to do more, not necessarily to do better. And that has real consequences:

Patients may receive unnecessary or repetitive care.
Hospitals have little financial motivation to track long-term outcomes or reduce avoidable complications.
Health outcomes suffer.

As a result, the system is flooded with high-cost care, fragmented experiences and outcomes that don’t always match the price tag.

We Know What Works: Value-Based Care

Michigan’s experience proves there’s a better way.

Blue Cross Blue Shield of Michigan, in partnership with physicians and health care systems statewide, has developed programs like Value Partnerships and Blueprint for Affordability that reward providers and health systems for improving health outcomes, reducing costs and eliminating unnecessary care. These arrangements are built on shared accountability, where everyone has a stake in outcomes for patients.

Under the value-based care model, providers are paid based on the patient outcomes they deliver — including care quality and overall efficiency — not volume. This payment approach incentivizes:

Prevention and Wellness: Providers are rewarded when they keep patients healthy, reducing the need for expensive treatments later.
Coordinated, Effective Care: Primary care physicians, specialists and health care systems communicate and work together to manage care, cutting down on unnecessary and duplicated services.
Better Health Outcomes: Providers who demonstrate success in improving patient health can earn more — and less if outcomes don’t improve.

Hospitals Must Be Part of the Solution

Hospitals are vital to communities. They also account for 47 cents of every dollar a Blue Cross Blue Shield of Michigan member pays in their premium. Hospitals are big drivers of cost — and therefore present opportunities for change to make health care more affordable.

Many physicians have already embraced value-based care. They’re focusing on prevention, coordinating across specialties, and improving outcomes for the people they serve.

Hospitals need to do the same. Strong, growing and financially stable hospitals are essential. But if they are asking for higher payments, they must deliver better results in return.

Shared Responsibility, Better Outcomes

Moving hospitals into value-based payment models means evolving toward a system that:

Pays for what works.
Rewards providers for keeping people healthy.
Reduces the financial burden on families, employers and public programs.

Because the cost of care keeps rising — and people can’t keep paying more for the same.

Learn about value-based care and what Blue Cross is doing to make health insurance more affordable by clicking here.

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