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Payment System Reform: One State's Journey

Millwee, Billy MHA; Goldfield, Norbert MD; Averill, Richard MS; Hughes, John MD

Journal of Ambulatory Care Management: July/September 2013 - Volume 36 - Issue 3 - p 199–208
doi: 10.1097/JAC.0b013e318295fb8f
Original Articles

In June 2011, Texas enacted Senate Bill 7, which mandates a Medicaid quality-based outcomes payment program on the basis of a common set of outcomes that apply to all types of provider systems including hospitals, managed care plans, medical homes, managed long-term care plans, and Accountable Care Organizations. The quality-based outcome measures focus on potentially preventable events (services) such as preventable admissions and readmissions that result in unnecessary expense, patient inconvenience, and risk of complications. The payment adjustments relate to a provider system's effectiveness in reducing the rate at which potentially preventable events occur. The program envisioned by Texas Medicaid is one that is administratively simple, establishes the right financial incentives to drive delivery system improvement, and does not intrude on the provider practice or the patient. Rather than imposing a series of processes that must be followed or require rigid adherence to standardized protocols, the payment adjustments are based on risk-adjusted comparisons of the rate of potentially preventable events for an individual provider systems to an empirically derived performance standard such as the state average. This article proposes a payment system design that can meet the ambitious objectives of the Texas legislation.

Dripping Springs, Texas (Mr Millwee); 3M Health Information Systems, Northampton, Massachusetts (Dr Goldfield); 3M Health Information Systems, Wallingford, Connecticut (Dr Averill); and School of Medicine, Yale University, New Haven, Connecticut (Dr Hughes).

Correspondence: Billy Millwee, MHA, 568 Beauchamp Road, Dripping Springs, TX 78620 (

The authors have disclosed that they have no significant relationships with, or financial interest in, any commercial companies pertaining to this article.

© 2013 Wolters Kluwer Health | Lippincott Williams & Wilkins