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November 01, 2021

Health Law Connections

From Payment for Volume to Payment for Value

AHLA thanks the leaders of the Payers, Plans, and Managed Care Practice Group for contributing this feature article.
  • November 01, 2021
  • Andrea R. Cunha , K & L Gates LLP
  • Whitney J. Dockrey , Ascension St. John
  • Kim Harvey Looney , K & L Gates LLP

When Medicare was first established in 1965, the federal government adopted the payment methods used by Blue Cross and Blue Shield plans where hospitals were paid on the basis of their own costs and physicians were paid on the basis of the fees they charged or their usual, customary, and reasonable charges. These payment systems provided no incentive to control costs and did not take into account the quality or appropriateness of care or its effect on patient outcomes. In effect, hospitals were rewarded for higher costs and physicians were rewarded for higher fees. Between 1975 and 1985, annual Medicare spending per beneficiary rose from $472 to $1,579—a growth rate of 12.8% per year, or 5.3% when adjusted for economy-wide inflation.1

  • Payers, Plans, and Managed Care
  • Government Reimbursement
  • Health Care Delivery Models

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