Skip to Main Content

How the U.S. pays for health care is neither efficient nor fair.

Despite spending an astounding 20% of its economic output on health care, the U.S. ranks poorly among high-income countries in national health system performance. To make matters worse, the payment system for this care has ingrained systematic health inequities for historically marginalized groups like people of color and low-income Americans.


Many individuals in these groups and their families are covered by public health insurance programs like Medicaid or the Children’s Health Insurance Program. These often pay doctors and hospitals only a fraction of what private insurers pay for the same care. Together with structural racism, this payment disparity creates what is effectively a two-tier system for the haves and the have-nots.

The solution seems simple: Pay more. But even if policymakers were to increase payments for care provided through public insurance, they would flow through a system that pays doctors and hospitals for every visit or procedure in a piecemeal, fragmented fashion that doesn’t address entrenched structural inefficiency and inequities. Simply paying more is also fiscally and politically challenging, as reflected in stalled legislation to create parity between what primary care doctors are paid for taking care of Medicaid and Medicare patients.

To level this tiered system, the U.S. needs to fundamentally revamp how it pays for health care. Over the past decade, government and private health insurers have been trying to do just that with the “big idea” of moving toward a value-based approach that pays more for good results — cost-efficient, high-quality care that delivers better health. Value-based payment has produced early wins by improving quality with modest reductions in health spending for populations assigned to certain clinicians as well as people hospitalized for surgery or medical illness. But low-income Americans may not experience these benefits.


Low-income Americans frequently struggle with unstable housing, inadequate access to healthy food, limited transportation options, and more. Some also face barriers or structural discrimination as a result of living in rural areas or identifying as racial or ethnic minorities. These issues can complicate an individual’s health, making good outcomes harder to achieve and medical care more costly.

A value-based payment approach based on costs and health outcomes can create conflict for doctors and hospitals, pitting their intrinsic motivation to care for all patients equally against the fear that lower-income patients will hurt their financial bottom lines or, in the most extreme case, put them out of business. Scary financial scenarios may prompt doctors and hospitals to shun low-income patients such as those on Medicaid to avoid being on the financial hook for their care. The result: widened inequities.

These dynamics are already in play. For example, doctors in lower-income areas avoided participating in early value-based payment arrangements, thereby limiting their access to a program that could lead to higher quality and lower costs. Such dynamics open an even greater divide where being poorer prevents some Americans from reaping the benefits of innovations that save patients and the health care system money or improve health.

Abandoning ship on value-based payment is not the solution. Paying for value is vital to the long-term sustainability of the U.S. health care system, counteracting the historical fee-for-service system that does little to fix income disparities. Instead, policymakers and health care leaders can use a value-based payment approach to reform the two-tier system that ossifies structural inequities. We offer four steps for doing so.

The first step is to acknowledge how widespread methods for paying doctors and hospitals for care has created inequity and set an intention to change that dynamic. That’s why we and 170 others around the country — doctors, hospital executives, and public health experts; equity and payment scholars; leaders of university departments and schools; senior leaders at professional societies; and others — have called upon the health care community to set an explicit intention to make payment a tool for eradicating health disparities.

The Biden administration has embraced this message and included health equity as a cornerstone of new payment arrangements created through the Centers for Medicare and Medicaid Innovation. Changing how health care is paid for will require diverse perspectives and shared principles, so coalitions will be needed to help translate principles into strategies. While more needs to be done, groups like the Health Care Payment Learning and Action Network — a group of public and private health care leaders convened by the US Department of Health and Human Services — have brought stakeholders together as an early step toward progress.

Second, measures of equity must be created and used to guide health care payment. While doctors and hospitals are already judged on many performance measures, nearly all assess outcomes — How did patients do overall? — rather than gaps in outcomes — How did lower-income patients do compared to higher-income patients? We cannot change what we do not measure.

Early targets could be common diseases long marked by disparities such as diabetes and high blood pressure. Other starting points include areas where disparities are already being reported for lower-income individuals, as the New York Department of Health has done for preventive care and behavioral health. While measure creation sounds like a trivial task, it is not. More equitable ways of paying for care require careful investigation and testing to ensure that equity measures are reliable and actually measure what they are supposed to measure.

Third, policymakers should pay for care in a way that increases investment in low-income communities — and do so using methods that are tied to results without creating lower care quality standards for low-income Americans. Compared to other groups, they more often get care in different neighborhoods from so-called “safety net” providers with a mission to serve low-income populations. America’s historic underinvestment in the health of the poor can be traced back in part to the failure to directly account for lived environment and its relationship to medical care.

Well-meaning value-based payment policies could try to address these failures by creating accommodations for lower-income individuals, making bonuses easier to achieve or penalties less stringent when caring for these populations. But such policy accommodations could also perpetuate a separate and unequal system for low-income patients if they handle lower-income communities differently than others, inadvertently setting lower quality standards for those communities and their doctors and hospitals. One way to avoid this pitfall is to allocate health care funds in part based on community needs like transportation, housing, and employment, but implement payment arrangements with the same standards and rules in all communities. This approach would provide extra resources that doctors and hospitals caring for larger numbers of lower-income patients can use to address social disadvantages. Countries like the United Kingdom and New Zealand have adopted similar health financing policies.

Fourth, doctors and hospitals should be paid based on achieving health outcomes that are comparable for patients of all income levels. While this goal might seem obvious, health disparities remain pervasive and incentives to reduce them are essentially nonexistent in U.S. health care. For instance, life expectancy is shorter among individuals with lower incomes, varying by up to 15 years between men with the highest and lowest incomes. Lower-income Americans are more likely to have heart disease and diabetes and other chronic conditions than higher-income individuals. Money should be used to motivate doctors and hospitals to rectify inequities, for instance by closing gaps in health outcomes between different groups.

To be fair, these steps will require great effort. Rigorous monitoring that compares outcomes for lower- and higher-income individuals are also needed because even with intentional design, no payment approach is immune to unintended negative consequences. The U.S. will also need to support research that identifies which payment strategies are fruitful for advancing equity.

To be sure, how health care is paid for is just one among many areas where changes are needed to address equity for lower-income Americans. Nonetheless, payment is a powerful motivator that can be harnessed into a solution to promote health equity. The health care community should capture this opportunity and undertake this work without delay.

Amol Navathe is an internist and co-director of the Healthcare Transformation Institute at the University of Pennsylvania. Risa Lavizzo-Mourey is president emerita and former CEO of the Robert Wood Johnson Foundation and professor emerita at the University of Pennsylvania. Joshua Liao is an internist, associate chair for health systems, and associate professor in the Department of Medicine at the University of Washington School of Medicine.

Create a display name to comment

This name will appear with your comment

There was an error saving your display name. Please check and try again.