Payment reform: A trend in White House thinking

White House health reformers have pressed over the last month for payment reforms that would reward doctors and hospitals for spending less and delivering higher quality care, rather than simply providing a higher volume of services.

The Wall Street Journal reports that reexamining payment systems is a hot topic among administration officials in other disciplines, too: "President Barack Obama believes you get what you pay for--in business, in health care and in teaching. And in each of those spheres, he doesn't think the way the U.S. pays professionals is designed to get what the nation really wants and needs."

While Obama budget chief Peter Orszag leads the charge on changing physician payment, Treasury Secretary Timothy Geithner has suggested a mandate to pay business executives based on the performance of their companies, an alternative to other proposals calling for executive salary caps. And Arne Duncan, the education secretary, has said standardized-test scores should factor into teacher's compensation.

These types of reforms could be a challenge. Especially in health care and education, critics argue, "quality measures remain crude and pay-for-performance schemes don't work as intended." In business, the pay-for-performance concept is more familiar, though it has come with unintended consequences. In the 1980s and 90s, executives were increasingly paid in stock options as a way of reflecting the corporation's performance under their steerage. But it lead them to make choices that would temporarily inflate stock prices so they could cash out, with little regard for long term effects (Wessel, 7/9).