The U.S. health care system is often inefficient, ineffective, and inequitable. Compared to other high-income countries, the U.S. pays more for health care and has worse outcomes. One potentially fruitful avenue for controlling costs and improving care is changing how care is paid for.
The federal Center for Medicare & Medicaid Innovation is tasked with developing and testing innovative payment models. One example is bundled payments for comprehensive care for joint replacements, in which hospitals receive a predetermined target price for an entire episode of hip or knee replacement care, including the surgery, hospital stay, and post-acute care like rehabilitation. Bundled payments encourage hospitals to control costs because the hospitals benefit financially if the cost of care comes in under the target — as long as they maintain quality — but remain on the hook for any spending over the target.