The government is starting to encourage “pay for performance” models as a means of incentivizing doctors to improve performance and patient outcomes. This new model for managing patient health care differs from the traditional “fee for service” model and may prove to be an important tool in lowering health care costs.

The Traditional Fee for Service Payment System

The traditional fee for service model is predicated around doctors, hospitals and other health care providers receiving a basic fee for the services provided to patients. Patient outcomes for the service provided are in no way related to fees paid. The amount paid for services provided are instead the result of a negotiation between the health care provider and the insurance company, sometimes resulting in unwarranted procedures and tests.

Beginning in 2015, the Secretary of Health and Human Services and the Centers for Medicare & Medicaid Services are directing a move away from the traditional fee for service model and toward a value-based payment program that rewards quality of care over quantity, according to the American College of Physicians.

Will Pay for Performance Improve Care?

Pay for performance standards have been the subject of discussion for years in the medical community. The American Medical Association created more than 100 quality performance measures to show Congress back in 2006. The evidence to date suggests that the model will work on changing patient outcomes and bridge the partnership between doctors and patients to reduce unnecessary procedures, create goal-oriented performance measures and reduce overall health care costs.

Why is this information important to you as an employer? The simple answer is a shift to pay for performance standards for health care results in better health outcomes and increased productivity for your employees if the plan is “customized, well-focused and suitable to the organization’s culture and setting,” according to an NIH study.

Regardless of your business’s health plan, the anticipated outcomes from the move toward pay for performance represent a boon for your company, but you still want to find ways to lower your out-of-pocket expenditures by working with a provider that understands the needs of your workforce.

Donald Parker has more than 20 years of experience in the insurance and financial services industry with several Fortune 500 companies. He holds a life, accident and health insurance license in Virginia. He has been FINRA Series 7, 24, 63 and 65 registered and specializes in the areas of long-term care, senior needs, retirement and employee benefit planning.