Mark Pauly, NEJM, Reducing Costs With Market-Based Incentives

Mark Pauly, NEJM, Reducing Costs With Market-Based Incentives

In a New England Journal of Medicine article co-authored with Joseph Antos and Gail Wilensky, LDI Senior Fellow Mark Pauly says the Affordable Care Act's payment provisions and pilot projects fail to address a flawed financing system whose incentives promote more spending, not better spending.

"In a market-based approach," they write, "open-ended subsidies to beneficiaries and price-controlled reimbursements to providers should be replaced with fixed dollar subsidies -- effectively shifting Medicare from a defined-benefit to a defined-contribution approach. The business model would shift from one that is driven by the volume and intensity of services to one that rewards cost-effective and efficient care.

Pauly, PhD, is a Wharton School Professor of Health Care Management.