The United States stands at a crossroads in how to pay for health care. Fee for service, the dominant payment model in the U.S. and many other countries, is now widely recognized as perhaps the single biggest obstacle to improving health care delivery. A battle is currently raging, outside of the public eye, between the advocates of two radically different payment approaches: capitation and bundled payments. The stakes are high, and the outcome will define the shape of the health care system for many years to come, for better or for worse.
In this article, the authors argue that although capitation may deliver modest savings in the short run, it brings significant risks and will fail to fundamentally change the trajectory of a broken system. The bundled payment model, in contrast, triggers competition between providers to create value where it matters—at the individual patient level—and puts health care on the right path.
The authors provide robust proof-of-concept examples of bundled payment initiatives in the U.S. and abroad, address the challenges of transitioning to bundled payments, and respond to critics’ concerns about obstacles to implementation.
The United States stands at a crossroads as it struggles with how to pay for health care. The fee-for-service system, the dominant payment model in the U.S. and many other countries, is now widely recognized as perhaps the single biggest obstacle to improving health care delivery.
Read more on Business and society or related topic Healthcare sector A version of this article appeared in the July–August 2016 issue of Harvard Business Review.
Michael E. Porter is the Bishop William Lawrence University Professor at Harvard Business School. He has served as an adviser to governments and campaigns around the world on the advancement of social policy and economic policy, including Mitt Romney’s presidential campaign. His latest paper is The Role of Business in Society. He is an academic adviser to the Leadership Now Project.
Robert S. Kaplan is a senior fellow and the Marvin Bower Professor of Leadership Development emeritus at Harvard Business School. He coauthored the McKinsey Award–winning HBR article “Accounting for Climate Change” (November–December 2021).
