Accountable care organizations aren’t the only way states can address rising health-care costs. Some are doing it within their existing system of managed care. Consider Tennessee. In the early 1990s, it became the second state in the country to roll out Medicaid managed care on a wide scale. In those early years, it struggled to contain costs and deliver on quality. But since then, the state has become the first to require national accreditation of managed care plans and extensive reporting on quality benchmarks. For more than a decade, cost growth per member has been held to well below the national average. To the state’s advantage, those plans are also involved in the commercial market, where much of today’s payment reform got its start.

Given Tennessee’s successful record with managed care, some have questioned why the state decided to push for payment reform in 2013. “In this particular case, with everyone doing their own approach, we realized that [payment reform] was having some difficulty taking hold [among providers],” says Darin Gordon, Tennessee’s Medicaid director. For instance, some commercial payers were already piloting a “medical homes” model, which brings together teams of doctors, nurses, nutritionists, care coordinators, social workers and other practitioners who emphasize the use of prevention benchmarks, such as lowering obesity. Tennessee is now pushing that idea even further, launching a statewide medical home program at the primary care level among Medicare, Medicaid and commercial insurance patients.

At the same time, the state is rolling out a simplified form of bundled payments for several high-volume or high-cost procedures, with plans to add more every three to six months. In a traditional bundled system, one provider handling most of a procedure -- say, an orthopedic surgeon performing a knee replacement -- might receive a lump sum and distribute it across suppliers and other providers involved with the episode of care. In Tennessee’s system, everyone involved with the procedure still receives individual fees for the service, but if they perform below cost while maintaining high quality, they share in the savings.

From Gordon’s perspective, the efforts fortify what the state’s Medicaid health plans are already doing. They also acknowledge a fact of 21st-century health reform: Changing the incentives at every level, including the doctors, is the only way the health-care system will improve -- in terms of both quality and cost. “The health plans are great, they’ve done a lot for us. But the next area of opportunity is how we can work to help the health plans and providers work better at achieving better outcomes."