How should we pay for health care?

Improving provider incentives and reimbursement must become a central component in health care reform. Reimbursement through bundled payments -- a single payment that covers all the procedures, tests, drugs, devices, and services during inpatient, outpatient, and rehabilitative care for a patient's medical condition -- is the only approach that aligns providers, payers, and suppliers in a healthy competition to increase patient value. In this article, we articulate the principles of value-based bundled payments, how such bundles should be constructed, and why we believe this reimbursement method best aligns everyone's interests around value. We describe how recent improvements in measuring outcomes and costs have overcome past barriers to wide-scale adoption of bundled payments. We conclude by describing how bundled payments can transform competition in health care, and their longer-term implications for providers, payers, employers, and patients.