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Widespread concern about high and rising costs, coupled with increasing evidence that the quality of U.S. health care varies greatly, has put health care reform near the top of the domestic policy agenda. Policy makers face mounting pressure to reform provider payment systems to spur changes in how providers are organized and deliver care.

In many communities, physician practices, hospitals and other providers are poorly integrated in terms of culture, organization and financing. While these independent arrangements may offer some benefit, such as broadened patient choice, the flip side of independence is fragmentation—across care sites, providers and in clinical decision making for patients. Current payment systems, particularly fee-for-service arrangements, reinforce delivery systems that offer care in silos and reward greater volume but not quality of care. Fee-for-service payment also provides few incentives for providers to invest in improving care for chronic illnesses, which account for a far greater proportion of health care spending than do acute illnesses.