Recipients of AcademyHealth’s Presidential Scholarship for the AcademyHealth Institute on Advocacy and Public Policy were invited to blog about their experiences during the 2013 National Health Policy Conference. The following post is written by Thomas Tsai, M.D., a general surgery resident at Brigham and Women's Hospital. In the discussions around health care reform, payment reform inevitably emerges as an innovative tool to potentially realign incentives in health care to reward health care quality and not just volume of services. As Medicare makes incremental shifts away from the traditional fee-for-service model towards newer payment schemes such as bundled payments, capitated payments, and value-based-purchasing, one of the most promising, yet potentially least-understood mechanism, is the accountable care organization (ACO). Bringing together a range of panelists from academia to practitioners, the National Health Policy Conference “New Models to Pay for Health Care” panel broke down the challenges and opportunities in these new payment models with empirical evidence from Medicare claims as well as case studies of successful, real-world practice organizations that have embraced these new payment models. The simple idea of the ACO is to reorganize health care providers to be accountable for both the quality and costs of care delivered to Medicare beneficiaries and concurrently be subject to shared savings or penalties as a result of the care delivered. ACOs have become the new buzzword in health reform, but as Harold Miller from the Center for Healthcare Quality and Payment Reform explained, there is a real danger of an ACO becoming a “black box.” ACOs attempt to give each patient an accountable medical home, and free up financial resources for primary care providers to provide better care management. But, as Miller explains, “In reality, many ACOs aren’t truly reinventing care or payment within the black box. If physicians are still being paid fee-for-service within an ACO, how much change is really possible?” Extending the theme of shared accountability, Robert Mechanic from Brandeis University presented empirical data on the Medicare Bundled Payment Initiative. Bundled payments consist of a single payment to cover an episode of care with shared accountability for payment and outcomes among the hospital, inpatient providers, and post-discharge care facilities and providers. Mechanic offered three key lessons. First, Medicare spends a tremendous amount for post-acute payments during a 30-90 day period. Secondly, there is a significant variation in post-acute spending among Medicare beneficiaries. For total joint replacement, a 100 percent variation exists ($6,000 vs. $12,000) between high-spending and low-spending beneficiaries, with the primary driver of the cost being discharge to either the home or a skilled-nursing facility. Understanding the appropriateness of post-discharge care would be an important step to understanding what a bundle for orthopedic procedures would look like. Lastly, hospitals face significant risk within a Diagnosis-related group (DRG) due to random year-to-year variation, which places small hospitals at the most financial risk. These insights from empirical data will hopefully lead to improved clinical care pathways and post-discharge monitoring systems under a bundled-payment scheme. Karen Van Wagner from North Texas Specialty Physicians (NTSP), a practice organization of 600 specialty and primary care physicians in the Ft. Worth area of Texas, presented a framework for what the design of an effective ACO might look like. Using innovative incentive strategies for their providers, North Texas Specialty Physicians was able to encourage adoption of electronic medical records, or EMRs, for physicians. Knowing that the key to transforming delivery is not simply having an EMR but using it effectively, NTSP subsidized EMRs for physicians with the proviso that physicians in return had to agree to a health information exchange in order to share notes and clinical data. Through capitated payments to primary care providers, NTSP was able to compensate PCPs for unbillable time spent with patients. Additionally, specialists also received a monthly capitation while at the same time guaranteed specialists payment at Medicare rates or more each month. Specialists also had the ability to restructure relative-value units (RVU), and surgeons in the practice restructured payments by increasing the payment for observation visits relative to hospital admissions to reduce unnecessary admissions. Moving from the Medicare system to the real world of multiple payers poses a unique set of challenges as providers potentially face mixed incentives from the mix of private and public payers. This challenge was brought to focus by Susie Dade from Puget Health Alliance. As a third-party organization that had no vested interest with either payers or providers, Puget Health Alliance was able to help lead the Washington State Medical Home Pilot, which established a common pilot across five commercial and two managed Medicaid plans. Although the early data has yet to show significant cost savings or reduced ED admissions, the pilot has identified important information on how to align the incentives across myriad providers and payers. In order for providers and patients to truly benefit from a medical home, clinical and administrative data need to be shared in real-time to providers in order to better coordinate and evaluate care processes. From bundled payments to accountable care organizations, the new payment models are here to stay. The panelists at AcademyHealth’s National Health Policy Conference illustrated key opportunities as well as potential pitfalls as our nation’s health care system moves away from fee-for-service to the brave new world of paying for value and not volume. What underscores these lessons is the underlying importance of empirical data. Clinical data on patient outcomes and administrative claims data on patient utilization are needed for the design of a bundled payment that will be large enough to reward hard-working providers and hospitals for the care offered, but not too generous enough to incentivize wasteful spending. As Dr. Mechanic’s presentation clearly illustrates, the data can show unintended consequences—small hospitals being penalized based on random variation instead of enduring deviation from a national average. From the Washington State Medical Home Pilot, we learned that the provision of real-time data from the payers to the providers is the only way that incentives for change can become measurable results. What’s truly needed to improve population health are not simply integrated providers through ACOs or medical homes, but free exchange of data and meaningful collaboration among insurance companies and payers, so that physicians are not delivering care based on fragmented data and mixed incentives. The North Texas Specialty Group demonstrates that if you adequately compensate and give providers the right incentives and the power to control their own practices, you can encourage not just adoption of EMRs, but the creation of a shared health information exchange. With open and real-time access to data coupled with new payment mechanisms, an environment can be potentially created in which delivering value is not an accident, but a deliberate result.