The Next Generation of Payment Reforms for Population Health – An Actionable Agenda for 2035 Informed by Past Gains and Ongoing Lessons

Abstract

Policy Points.

• The predominantly fee‐for‐service reimbursement architecture of the US health care system contributes to waste and excess spending.

• While the past decade of payment reforms has galvanized the adoption of alternative payment models and generated moderate savings, uptake of truly population‐based payment systems continues to lag, and interventions to date have had limited impact on care quality, outcomes, and health equity.

• To realize the promise of payment reforms as instruments for delivery system transformation, future policies for health care financing must focus on accelerating the diffusion of value‐based payment, leveraging payments to redress inequities, and incentivizing partnerships with cross‐sector entities to invest in the upstream drivers of health.

The american paradox of spending a disproportionately greater share of the country's gross domestic product on health care without achieving commensurate improvements in care quality or outcomes has long rendered the United States an outlier in comparison to other high‐income countries. ¹ Although the economic shock of the COVID‐19 pandemic induced a temporary deceleration in spending growth, national health expenditures in the United States still exceeded $4.3 trillion in 2021, and are projected by the Centers for Medicare & Medicaid Services (CMS) to reach $6.3 trillion by 2030. ² Other countries around the world are also grappling with the challenge of curtailing spending, which in both the United States and abroad can be attributed to a number of factors including the evolving burden of chronic diseases, the aging population, and the cost of new medical technologies. However, US health care spending remains aberrant even after accounting for these factors, from substantial added costs arising from administrative waste and unnecessary service provision to fragmented care and incentive misalignment. ³

These excess expenditures also reflect a fundamental flaw in how resources are allocated across the American health care system. For example, the United States spends three times as much on wasteful administrative complexity as it does on the entirety of federal, state, and local public health. ⁴ Likewise, the literature on low‐value care—which accounts for nearly $100 billion in wasteful spending—should be considered alongside emerging evidence about the under‐provision of high‐value care, with many high‐risk patients often lacking access to clinically appropriate diagnostics and therapeutics. ⁵ Resource misallocation not only exacerbates financial strain for payers, employers, and families, but also contributes to longstanding inequities in health care organization and delivery exemplified by worse access and outcomes for racial and ethnic minorities and low‐income populations. ⁶ , ⁷

To address these challenges, US health care reform over the past decade has placed substantial focus on rewiring health care financing, specifically increasing provider accountability for utilization (i.e., cost) and/or outcomes. Previous legislation and administrative action sought to slow spending by regulating either the quantity (e.g., the so‐called “managed care revolution” of the 1990s) or the price (e.g., Medicare's Sustainable Growth Rate, which was repealed in 2015) of health care services. ⁸ However, these approaches often focused disproportionately on moderating costs over improving outcomes, and also lacked the broad stakeholder support that is necessary to achieve durable change. Instead, with the passage of the Affordable Care Act (ACA) in 2010, lawmakers sought to promote policies focused on marrying the goals of payment reforms (lower costs) and delivery system transformation (better quality and outcomes).

A core priority underlying this approach was deconstructing the architecture of fee‐for‐service (FFS)—in which providers are reimbursed according to the volume of services delivered—in favor of alternative payment models (APMs) that explicitly linked together quality and payment. To this end, the ACA tasked CMS with a) migrating the majority of Medicare payments away from FFS and into APMs and b) conceptualizing and implementing new care delivery models. ⁹ Importantly, given both that the majority of Americans are covered under employer‐sponsored insurance plans and commercial payers are playing an ever increasing role in care provision to Medicare and Medicaid beneficiaries through Medicare Advantage and Medicaid Managed Care Organizations respectively, policymakers have made a concerted effort to ensure payment reforms were inclusive of and harmonized with the private sector. Indeed, Medicare reforms have become a bellwether for action by state Medicaid programs and commercial insurers, and CMS has explicitly focused on multi‐payer engagement and support for multi‐payer models. ¹⁰

A decade after passage of the ACA, 40.9% of all health care spending across all payer mixes in the United States is now deployed through some type of APM. ¹¹ However, the majority of these APMs are still built on the chassis of FFS, with only 6.4% of all reimbursement occurring via true “population‐based payments.” Recent systematic and narrative reviews do suggest that efforts to transition away from FFS among governmental and commercial payers have been associated with modest savings. ¹² , ¹³ For instance, the Medicare Shared Savings Program (MSSP), which is CMS's largest APM and currently encompasses 11 million Medicare beneficiaries, has achieved over $2.3 billion in savings for the Medicare program to date. ¹⁴ Within the commercial sector, only a limited number of methodologically rigorous evaluations of APMs have been conducted, yielding comparatively mixed evidence with regard to spending and utilization changes in comparison to government payers. ¹⁵

Beyond cost containment, CMS has also sought to advance meaningful delivery system transformation. To this end, the Center for Medicare and Medicaid Innovation (CMMI) has launched 54 different innovation models encompassing nearly 26 million patients and 1 million providers. However, only four models have been certified by the CMS Actuary for permanent expansion, and a recent CMMI‐led review highlighted the different challenges encountered by the agency when designing and implementing models (e.g., benchmarking, voluntary provider participation, risk adjustment). ¹⁶ Furthermore, payment and delivery reforms to date have made scant headway in addressing health inequities and the upstream drivers of health; and indeed, in some cases have even been associated with adverse outcomes for racial and ethnic minorities. ¹⁷

Today, health care financing in America is arguably at an inflection point. The federal government is currently recalibrating its approach to APM design, with CMMI recently releasing a new strategic refresh aimed at streamlining operations and recentering payment reforms around five strategic goals: driving accountable care, advancing health equity, supporting care innovations, improving access by addressing affordability, and partnering to achieve system transformation. ¹⁸ The COVID‐19 pandemic has also generated an added urgency for restructuring health care financing, with the public health emergency exposing and exacerbating the vulnerabilities of FFS, generating substantial financial pressures for patients and providers. Despite this turbulence and change, innovations in health services research and policy continue to highlight opportunities for change, with a particular focus on how payment systems can be leveraged to encourage upstream investments for population health improvements. ¹⁹ Importantly, ongoing health financing reforms such as “value‐based care” (i.e., maximizing health outcomes per unit cost) continue to receive strong bipartisan and bicameral support from policymakers, providing a platform for structural change.

If the focus of the past decade was securing buy‐in for payment reform, then the focus for the next decade should be navigating the intersection between changes in health care financing and changes in population health. Forward movement toward this end will require a) aligning incentives and policies across the entire spectrum of care delivery and b) the continued support for and iteration of financing models with an explicit focus on addressing disparities and driving population‐level health improvements. Many individuals and entities—including patients, clinicians, health systems, scholars, and multi‐stakeholder coalitions—will have to play an important role in the design, implementation, and evaluation of the next generation of payment reforms. However, this Perspective will specifically focus on analyzing health care financing through the lens of payers, with a particular emphasis on CMS given the agency's outsized role in directly shaping payment policy for more than 135 million Americans via Medicare and Medicaid and indirectly driving the direction of payment reform via its convening, rulemaking, and experimentation authority. ²⁰ To this end, we review the key considerations for using health care payments to advance population health, examine progress, shortcomings, and lessons learned from the past decade of payment reforms, and propose an action agenda to realize these goals by 2035.

Key Considerations for Health Care Payments and Population Health

Although terms such as APM and value‐based payment (VBP) are now ubiquitous in the health care lexicon, there remains substantial variation in the definition and design of different health care financing arrangements. For the purposes of this article, we will rely on the framework of the Health Care Payment Learning and Action Network (HCP‐LAN), which was created by CMS in 2015 to support structural alignment on health care financing reforms across the public and private sector. ²¹ HCP‐LAN has defined four different categories of APMs, with each category differentiated by the level of financial risk shared between payers and providers. Based on stakeholders’ real‐world experiences operating under APMs, HCP‐LAN has also identified several practical considerations for the successful implementation of payment reforms, including data sharing, financial benchmarking, patient attribution, and performance measurement. The HCP‐LAN framework is reproduced in Figure 1, with representative examples of APMs mapped to the framework summarized in Table 1.

Figure 1.

HCP‐LAN Framework for Alternative Payment Models. [Colour figure can be viewed at wileyonlinelibrary.com]

Reproduced from Health Care Payment Learning & Action Network. Alternative Payment Models (APM) Framework. July 11, 2017.

Table 1.

Examples of APMs Across HCP‐LAN Categories

HCP‐LAN Category	Representative Example	Emerging Evidence
Category 1: Fee‐for‐service	Status quo in health care delivery	N/A
Category 2A: Foundational payments for infrastructure and operations	Comprehensive Primary Care Plus, Track 1	Summary: Providers billed under traditional Medicare fee‐for‐service and received a quarterly Care Management Fee. Outcome: Reduced outpatient emergency department visits, no change in acute hospitalizations, increased expenditures.
Category 2B: Pay for reporting	Medicare Incentive‐Based Payment System	Summary: Providers collect and report performance data to CMS related to quality, promoting interoperability, improvement activities, and cost. A score is calculated based on their reporting and used to determine a retrospective payment adjustment up to 4%. Outcome: 90% of clinicians received positive payments for the 2019 payment year. However, MIPS scores were lower for physicians caring for patients with greater social risk.
Category 2C: Pay for performance	Hospital Readmissions Reduction Program	Summary: CMS retrospectively adjust payments up to 3% based on hospitals’ 30‐day unplanned readmission rates related to 6 conditions (e.g., heart failure) and procedures (e.g., coronary artery bypass graft surgery). Outcome: Readmissions declined for both targeted and non‐targeted conditions. However, HRRP was associated with an increase in 30‐day post‐discharge mortality for select conditions.
Category 3A: APMs with shared savings	Medicare Shared Savings Program	Summary: Providers assume accountability for cost, quality, and outcomes and are eligible for shared savings if spending within an evaluation period is below a pre‐established benchmark. Outcome: ACOs within the model demonstrated reductions in spending after adjustment for bonus payments.
Category 3B: APMs with shared savings and downside risk	ACO REACH	Summary: Providers assume accountability for their beneficiaries’ care under a two‐side risk‐sharing arrangement. Providers must also develop a Health Equity Plan and benchmark. Outcome: Model begins in 2023, no data is currently available.
Category 4A: Condition‐specific population‐based payment	Comprehensive Care for Joint Replacement Model	Summary: Episodes of care for hip or knee replacement surgeries are reimbursed using a retrospective bundled payment that accounts for both procedure and post‐acute care costs. Outcome: CJR achieved spending reductions and did not increase complication rates.
Category 4B: Comprehensive population‐based payment	Hawaii's Population‐Based Payments for Primary Care Model	Summary: Primary care providers receive a risk‐adjusted per‐member per‐month and are eligible for bonuses based on individual quality performance and shared savings based on global performance. Outcome: First year of data highlights improvements in quality but no change in spending.
Category 4C: Integrated finance and delivery system	Maryland Total Cost of Care Model	Summary: All hospitals in Maryland are placed under a “global” budget for annual inpatient, outpatient, and emergency department care. Hospitals are incentivized to limit spending to the constraints of the budget. Outcome: Health care spending grew slower than targeted rate. Evidence does not suggest changes in care utilization or outcomes for select conditions.

CMS: Center for Medicare and Medicaid Services; MIPS: Merit‐based Incentive Payment System; ACO: Accountable Care Organizations; APM: Alternative Payment Models; HRRP: Hospital Readmissions Reduction Program; CJR: Comprehensive Care for Joint Replacement.

The work of scholars and multi‐stakeholder coalitions like HCP‐LAN over the past decade has largely focused on the mechanics of payment reform: how to design different financing strategies, how to account for interactions between different APMs, and how to appropriately evaluate models and measure the true savings (or lack thereof) from them. While these questions are undoubtedly important, the current recalibration of payment reforms also has policymakers reassessing the motivations for payment reforms. The original remit of the Affordable Care Act was primarily focused on reducing health care spending, and the design of CMMI demonstrations over the past decade reflected that call to action. However, designing payment reforms to advance population health requires incorporating beneficiary health, health equity, and the affordability of health services as explicit considerations in APM design.

This shift is reflected in CMS's recent strategic refresh, which includes these new areas of focus in addition to supporting care innovations and driving accountability for the total cost of care. Payers and providers will therefore need to need to ensure that APMs moving forward are aligned not only with best practices for contracting (e.g., appropriate benchmarking and risk adjustment methodologies) but also include financing strategies that are intentionally designed to support improvements in health and reductions in disparities. To this end, CMS has also highlighted the importance of partnerships in achieving health system transformation and has signaled support for financing mechanisms that address the social determinants of health. ¹⁸ Given that individual health is largely determined by factors outside of the clinic, efforts to reorient the chassis of health care financing away from solely medical care and towards whole‐person health—inclusive of determinants such as transportation, housing, food access, and more—will be critical to meaningfully improve overall patient wellbeing. ²² Importantly, APMs that are designed to shift the flow of health care spending away from individual transactions at the point of care and towards distributive models of resource allocation at the level of communities would better align with the ethos of HCP‐LAN's vision for truly “population‐based” payment models. The challenge for policymakers is therefore committing to broadening the scope of payment reform activities beyond clinical care alone to support meaningful advances in population health.

Lessons from Payment Reform Initiatives

Over the past decade, policymakers, payers, and providers have trialed a number of different financing models, with each approach offering a distinct value proposition and set of potential tradeoffs (Table 1 ). The majority of models still operate within a FFS payment architecture, but offer additional incentives to support care delivery transformation, such as foundational payments (e.g., Care Management Fees) and retrospective payment adjustments based on quality reporting and performance (e.g., MIPS). Within the Medicare population, these FFS‐based models have been associated with some quality improvements, but have not historically achieved savings (e.g., the Comprehensive Primary Care Plus Model). ²³ Beyond Medicare demonstration models, performance‐based payment models layered on top of FFS arrangements have also been successfully trialed by commercial insurers, such as Blue Cross Blue Shield of Massachusetts’ Alternative Quality Contract. ²⁴ However, the reliance on a FFS framework inherently limits the ability of and extent to which these models can remodel health care financing.

Instead, CMS has prioritized the use of financial risk to promote accountability among providers for cost and care quality. However, ongoing experience with the Accountable Care Organization (ACO) program has illustrated that APMs are a journey, not a destination, with providers requiring time, upfront investment, and practice transformation to successfully take on two‐sided financial risk. ²⁵ Beyond ACOs, which are primary care focused, CMS has also sought to develop models to address specialty conditions. Recent evaluations of episode‐based payments for specific procedures and conditions (e.g., hip and knee replacements) have demonstrated modest savings without changes in care quality or outcomes. ²⁶ Taken together, the health care system's experience with different payment models with varying degrees of financial risk illustrates that alternatives to FFS reimbursement are viable models that are capable of achieving spending reductions and outcomes improvements. At the same time, policymakers concede that the net effect of models on national health expenditures leaves much to be desired, and that APMs have only had limited impact when it comes to addressing the upstream drivers of health or the downstream operations of care delivery. Based on CMS's experience and evaluations in the literature, we offer the following five lessons from payment reform initiatives to date (Table 2 ).

Table 2.

Lessons From the First Decade of Payment Reform

Theme	Challenge	Lessons
Model design	Payment reforms and CMS demonstrations were characterized by redundancies, administrative complexities, and interactions	Promote alignment among existing models and streamline the development of future models
Multi‐payer alignment	Publicly‐financed insurance programs are increasingly contracted out	Advance multi‐payer strategies for payment reforms to promote alignment across the health care system
Optimizing spending reductions	Models to date have primarily focused on primary care and have had limited success in achieving spending reductions	Broaden models to engage specialists and promote the uptake of episode‐based payments and total cost of care models
Addressing upstream drivers of health	Payment reforms have largely advanced innovations in contracting rather than innovations in care delivery	Promote APMs that align health care financing with the social determinants of health
Advancing health equity	Some models have negatively affected racial and ethnic minorities, contributing to existing disparities in the health care system	Embed health equity into model design

First, the proliferation of demonstrations raises awareness that payments do not exist in a vacuum and that the health care system is not a closed system for experimentation. Indeed, there is greater appreciation for how the transition to new payment arrangements imposes a substantial burden on providers and health systems, who must navigate conflicting incentives, increased administrative complexity, and evolving requirements and expectations for clinical practice and quality reporting. ²⁷ , ²⁸ CMS has already signaled an interest in streamlining models and focusing on fewer, more explicit objectives; a key development that will both help to promote alignment across the health care system and improve the penetration of APMs across payer types.

Second, CMS must strive to ensure that ongoing and prospective activities reflect the broader landscape of stakeholders involved in publicly‐financed care delivery. The majority of Medicaid today is contracted out to Managed Care Organizations, and the majority of Medicare will be contracted out to Medicare Advantage beginning in 2023. ²⁹ , ³⁰ These trends mandate that CMS better account for how its models and regulations are impacting APM design for other payers covering related populations. For instance, national models for joint replacement in Medicare have been documented to affect spending and utilization under Medicare Advantage. ³¹ , ³² CMS models can therefore be thought as indirectly applying competitive pressure on commercial payers operating in the same markets. By continuing to embrace a multi‐payer approach to payment reform, CMS can ensure that the alignment between APMs and population health is broadly disseminated across the health care system.

Third, evaluations to date demonstrate that APMs that focus on primary care alone are insufficient for bending the cost curve. While starting with primary care is logical given that it is the foundation of our health care system and underpins most patient‐provider relationships, a broader aperture with respect to provider engagement will be needed to rein in health care spending. For one, the success of primary care focused APMs such as ACOs—which CMS intends to scale to encompass all Medicare beneficiaries by 2030—requires specialist engagement to improve care coordination and reduce duplicative testing and service utilization. Consider the case of cardiovascular disease, the leading cause of death in the United States, which affects 42% of Medicare beneficiaries and is a major driver of total cost of care and out‐of‐pocket expenditures. ³³ Research on MSSP suggests that ACOs with cardiologist participation had lower annual spending, fewer emergency department visits, and reduced all‐cause readmissions relative to counterparts without cardiologist participation. ³⁴ Beyond specialist engagement, payment reforms also need to promote clear accountability for specialty care spending, since it accounts for the majority of Medicare expenditures. ³⁵ , ³⁶ For example, Medicare's experience with episode‐based payments for joint replacement could be scaled to a number of other procedures and conditions. ³⁷ Currently, several payers across the country have piloted bundled payments for procedures such as coronary artery bypass graft surgery and cholecystectomies and for conditions such as chronic obstructive pulmonary disease and diabetes. ³⁸ We posit that consideration should be given to preferentially scaling condition‐based bundles due to the better alignment with shared decision‐making, inclusion of a broader range of providers and services, and inherent incentives to reduce unnecessary procedures. ³⁹ To minimize administrative complexity, policymakers could explore how total cost of care models such as the Maryland global budget program—which has generated the greatest net savings of all CMMI models to date—could be a vehicle for introducing new, episode‐based models to address specialty spending.

Fourth, as new financing reforms are developed and deployed, it is imperative that policymakers remember HCP‐LAN's exhortation that payment reform is not an end to itself, and that such “reforms are only as successful as the delivery transformations they support”. ²¹ During COVID‐19, regulatory flexibilities and payment reforms enabled unprecedented dissemination of a number of innovations in care delivery (e.g., telemedicine, hospital‐at‐home, and site‐of‐care flexibility) that offer applications for daily clinical practice beyond the pandemic. ⁴⁰ Population‐based payments, specifically total cost of care reimbursement frameworks, are a natural platform for sustaining and amplifying this experimentation, as providers have greater flexibility to allocate resources and natural incentives to avoid inappropriate utilization. Importantly, “delivery transformation” should not be limited to the confines of the clinic. CMS models such as Accountable Health Communities (within Medicare) and Integrated Care for Kids (within Medicaid) are early‐stage demonstrations focused on realigning health care financing to address the upstream drivers of health. ⁴¹ , ⁴² Recent work from the National Academy of Medicine has also documented how strategies ranging from risk adjustment for social factors to cross‐sector partnerships can support payment reforms focused on addressing whole person health. ⁴³ If CMS intends to use payment reforms to make meaningful progress on population health, then APMs moving forward will need to ensure that financing for the social determinants of health are the norm, not the exception.

Fifth, it is crucial that health equity be elevated as an explicit goal of the transformation of health care financing. Evidence over the past decade illustrates how payment reforms can re‐entrench the health disparities which are pervasive within the US health care system. For example, payment models with quality‐ or performance‐based reimbursement adjustments such as ACOs or MIPS have been shown to penalize providers caring for a patient mix predominantly comprised of minority patients. ⁴⁴ , ⁴⁵ Likewise, changes in clinical practice in response to financial incentives may lead to adverse selection and a bias against minority patients, with consequences for health care access (as observed in the Comprehensive Care for Joint Replacement Model) and outcomes (as observed in the Hospital Readmissions Reduction Program). ⁴⁶ , ⁴⁷ Such outcomes reflect how payment reforms, like any other policy intervention in health care, must be developed with consideration for the broader structural forces that have shaped American society for decades. CMS's focus on health equity as part of its new strategic plan and multi‐stakeholder collaboratives such as the Health Equity Payment initiative are promising developments. ¹⁸ , ⁴⁸ , ⁴⁹ However, rebalancing the scales of population health will require further, system‐level action. For instance, CMS will need to iterate the design of existing and future models to correct against gamesmanship and punitive treatment of providers who predominantly serve patients who are racial minorities, dual‐eligible, and have lower socio‐economic status (i.e., safety‐net providers). This aim is concordant with the recently announced Realizing Equity, Access, and Community Health (ACO REACH) model which includes a health equity benchmark adjustment in the payment methodology. ⁵⁰ Additionally, CMMI is aiming to embed a systematic evaluation of implicit bias, defined as the “differential impact created or exacerbated, without intention, by an algorithm, set of sequential rules, or standard processes within a model, with a particular focus on racial and ethnic groups”, across all phases and components of model development including but not limited to beneficiary attribution, risk adjustment, payment design, and provider tools. ⁵¹ Lastly, CMS and Congress may also need to consider equity interventions that go beyond model design, such as closing the reimbursement gap between Medicare and Medicaid. ⁵²

The Path Forward for Population‐Based Payment Reforms

If the past decade of payment reform was focused on testing proof‐of‐concept and generating evidence about the benefits and limitations of different models, then the next decade will be focused on implementing and iterating systemwide financing reforms focused on advancing population health. A number of frameworks and strategic guides have been published by leading scholars and experts to support policymakers in this work. For example, the Brookings Institution's “Blueprint” details how CMS could optimize the use of “tracks” within payment models (as the agency had previously done for MSSP), while the Leonard Davis Institute's “Road Map” offers a series of strategic goals, such as mechanisms for simplifying participation in VBP. ⁵³ , ⁵⁴ Informed by this literature, CMS in the fall of 2021 published a strategic refresh with five key objectives for the future of payment reform. Leveraging the same five instruments for system‐wide transformation articulated in that document, we outline an actionable agenda and opportunities for scholars and policymakers to meaningfully advance population health by 2035 (Table 3 ).

Table 3.

Policy Priorities for the Next Decade of Payment Reform

CMS Objective	CMS Aim	Policy Priorities
Drive accountable care	Increase the number of beneficiaries in a care relationship with accountability for quality and total cost of care.	Develop multi‐payer strategies to encourage provider and beneficiary participation in ACOs Address competition and interactions between ACOs, Medicare Advantage, and other APMs
Advance health equity	Embed health equity in every aspect of CMS Innovation Center models and increase focus on underserved populations.	Apply equity‐related process changes (e.g., regarding data collection) to existing and future models Create pathways to provide resources for providers caring for underserved populations to participate in APMs
Support care innovations	Leverage a range of supports that enable integrated, person‐centered care ‐ such as actionable, practice‐specific data, technology, dissemination of best practices, peer‐to‐peer learning collaboratives, and payment flexibilities.	Use APMs as a vehicle for trialing pandemic‐era care models such as Hospital at Home Invest in APMs focused on prevention and health promotion
Improve access by addressing affordability	Pursue strategies to address health care prices, affordability, and reduce unnecessary or duplicative care.	Apply a multi‐payer approach to APMs for novel medical products Consider potential adjustments for affordability within specialty‐focused APMs
Partner to achieve system transformation	Align priorities and policies across CMS and aggressively engage payers, purchasers, states, and beneficiaries to improve quality, to achieve equitable outcomes, to reduce health care costs.	Foster multi‐sector partnerships to advance population health, such as with public health departments

CMS: Center for Medicare and Medicaid Services; ACO: Accountable Care Organizations; APM: Alternative Payment Models.

First, CMS has called for an acceleration of the transition towards accountable care, setting a goal of migrating all Medicare beneficiaries and most Medicaid beneficiaries into ACO‐style arrangements by 2030. ACOs are the nation's most prominent APM and have been demonstrated to generate meaningful savings. A focus on multi‐payer strategies will be key to encourage more providers and beneficiaries to transition to ACO arrangements. For example, Medicaid—the largest publicly‐financed health insurance program in the country—has had comparatively less uptake of APMs, with only 14 states operating ACO programs as of 2021. ⁵⁵ To encourage further expansion, policymakers should seek to promulgate best practices for developing and disseminating ACO models through Medicaid and commercial payers. Both Massachusetts and New York have used the Section 1115 waiver process to develop and expand their state's ACO programs. Beyond beneficiary growth, CMS should also consider how to expand the number of providers participating in ACOs, with a particular focus on specialist engagement to drive improvements in chronic care management. ⁵⁶ Furthermore, CMS should offer guidance about potential interactions between ACOs and other value‐based models (e.g., episode‐based payments, total cost of care demonstrations) to avoid undue interactions between models (e.g., patient attribution, calculation of spending benchmarks). ⁵⁷ Lastly, with enrollment in Medicare Advantage set to eclipse that of traditional Medicare, CMS must consider how to address potential competition and interactions between ACOs and Medicare Advantage plans. Particular areas of focus could include addressing questions related to risk adjustment and upcoding, recalibrating benchmarking methodologies, and aligning quality standards between the two programs to minimize administrative friction for providers.

Second, CMS has enshrined advancing health equity as a clear goal for payment reforms, with a focus on incorporating equity into all demonstration models moving forward. The recently debuted ACO REACH model, which will go live in January 2023, is the first example, and includes a number of health equity requirements including the collection of sociodemographic data and the introduction of a health equity benchmark adjustment. ⁴⁹ Policymakers should explore how similar process‐related changes can be applied to existing models such as data collection requirements, benchmark adjustments, stratified reporting of model performance and beneficiary participation by race/ethnicity, geographic region, and social risk factors. Beyond elements of model design, advancing health equity will also require considerations for how best to develop pathways for vulnerable providers (e.g., those serving rural or safety net systems) to participate in APMs. For instance, the ACO Investment Model—which offered advanced payments to defray the startup costs of ACO programs for rural providers—successfully generated savings among practices caring for underserved populations. ⁵⁸ Total cost of care models, characterized by a per‐capita cap on total expenditures for Medicare beneficiaries per model year, build upon hospital global budgets and provide a vehicle for improving resource allocation at the community level to support progress for health equity. Pennsylvania's rural health model can be conceptualized as a test case for the implementation of global budgets within specific subpopulations (patients seeking care at participating rural hospitals) while Maryland's global budget revenue model has generated compelling evidence for the use of global budgets across the entire population of a state. ⁵⁹ , ⁶⁰ , ⁶¹

Third, CMS has reinforced that supporting care innovations is a key function of payment reform. To date, most demonstration models have largely been contractual innovations in health care financing as opposed to clinical or care delivery innovation. It is worthwhile for CMS to consider how payment reforms can be used to support novel clinical models. For example, policymakers could consider using APMs as a glide path for trialing and expanding new models of care. An immediate use case for this approach would be transitioning models developed under COVID‐19 waivers (e.g., Hospital Without Walls and Acute Hospital Care at Home) into everyday care options beyond the public health emergency. Similarly, APMs could be a chassis for experimenting with reforms to prior authorization and utilization management, which account for a significant portion of administrative spending within the health care system and varies significantly between public and commercial payers. ⁶² CMS could also consider how payment reforms can be intentionally designed with the goal of achieving health improvements, particularly with regards to chronic diseases. The agency's limited experience with health promotion models has been successful, from the Medicare Lifestyle Demonstration Program in the 2000s to the Medicare Diabetes Prevention under the ACA to the recently concluded Million Hearts model. As the population continues to age and the burden of chronic diseases continues to grow, broadening the focus of payment reform beyond savings to encompass meaningful advancements in clinical care should be elevated as a priority.

Fourth, CMS has called for affordability to become a priority for future payment reforms, with the agency citing opportunity areas ranging from drug pricing to low‐value care. This marks a substantive shift in agency policy, which previously has focused on payment reforms in the context of health care services. However, payment reforms for medical products and technologies is proving to be an emerging issue area for payers, as highlighted by the recent policy debate over Aduhelm, with CMS issuing a national coverage determination that limited coverage for the Alzheimer's drug to beneficiaries participating in randomized controlled trials. ⁶³ With passage of the Inflation Reduction Act of 2022 providing Medicare the authority to directly negotiate prices for select medications, CMS has new momentum to make forward progress on payment reforms for medical products. ⁶⁴ Within this domain, CMS should prioritize taking a multi‐payer approach, especially given the differential impacts and regulatory constraints of high‐cost products on Medicaid versus Medicare. ⁶⁵ CMS should also consider how payment reforms for affordability can be incorporated into ongoing APMs, with specialty‐focused models (e.g., for oncology, cardiology) serving as a natural starting point. ⁶⁶ , ⁶⁷

Fifth, CMS has emphasized that payment reform is not a journey meant to be undertaken alone, with the agency calling for partnerships to achieve system transformation. Multi‐stakeholder collaboration has been critical to the success of payment reforms to date, supporting the development of common definitions, data standards and the dissemination of best practices. A key priority for partnership moving forward should be efforts to build bridges across sectors to address the upstream drivers of health. For example, partnerships with public health departments would be a natural vehicle for advancing population health. Indeed, Public Health 3.0—which is the federal government's national roadmap for public health infrastructure—highlighted California's Accountable Communities for Health, a multi‐payer initiative focused on community health, as an example of potential partnership opportunities between health departments and payers. ⁶⁸ Likewise, collaborations with the social care sector are critical for improving the coordination of benefits and services. The fee schedule for the North Carolina Healthy Opportunities Pilot, a five‐year $650 million demonstration launched in 2023, includes 29 different social services related to housing, interpersonal violence, food, and transportation, and that are available for Medicaid members in pre‐paid health plans. ⁶⁹ This initiative serves to broaden the scope of impact for payment reforms from medical care to whole‐person health, and better align health care financing with the outcomes that matter to patients and populations.

Conclusion

Policy strategies for cost containment have been a feature of national health policy reforms for over 50 years, dating back to the genesis of Medicare and Medicaid. While long‐term solutions remain elusive, the past decade of scholarship and practice have drawn attention to a unique window in American medicine to recalibrate health care financing. However, progress to date has been uneven and encountered many challenges, from program‐level hurdles to APM adoption to policy‐level debates about whether payment reforms continue to be aligned with the goals of population health. Nevertheless, emerging evidence on the impact and rapid pace of change of APMs illustrates the opportunities presented by population‐based payments for advancing structural change. As policymakers, providers, and scholars navigate the second decade of the value‐based care movement, key priorities moving forward will include strengthening the linkages between payment reforms across different payers and broadening the scope of payment reforms to include explicit goals for improving population health equity and outcomes. Taken together, such strategies can help establish a stable foundation for payment reforms to drive durable and meaningful change for health system transformation.

Conflict of Interest Disclosures: Kushal T. Kadakia reports previous employment at Cleveland Clinic London, Google (via Adecco), Blue Cross Blue Shield of North Carolina, and the U.S. Food and Drug Administration, and has received consulting fees from the National Academy of Medicine, all unrelated to this article. Anaeze C. Offodile reports receiving grants and funding from Blue Cross Blue Shield Association, National Academy of Medicine, and Rising Tide Foundation for Clinical Cancer Research. He is a board member of the Patient Advocate Foundation and policy advisor to the Center of Medicare and Medicaid Innovation on population‐based payment models.