It should come as no surprise when we say the U.S. healthcare system is in a state of crisis. In fact, it has been for some time. The pandemic proved that prioritizing volume over value is unsustainable. Together, we have the power to create change. We all know a fee-for-service system is unsustainable, and the time to talk about the problem has come and gone. Our only option now is to march forward toward a more sustainable and effective healthcare system. Those who don’t will fall behind.
Today payers, providers, and employers have a responsibility to not only provide “sick care” for acute patient needs, but to be proactive in facilitating better health and financial outcomes for our entire population.
The value revolution is not about spending the lowest possible amount on each patient. Instead, it’s about spending the right dollars, at the right times, in the right places to optimize patient health. Payers and employers have a shared interest in getting the most out of healthcare dollars spent for healthy beneficiaries and employees. Providers want to deliver exceptional care, but their incentives need to align with the collective goals of delivering high-quality care and decreasing costs.
Value-based care is a dramatic change – and adoption has been slow as a result – but now the pieces are in place to move the revolution forward.
Currently around two-thirds of Medicare Part A and Part B beneficiaries are part of capitated payment arrangements or attributed beneficiaries in an Accountable Care Organization (ACO). In a 2022 analysis published in the New England Journal of Medicine, authors evaluated the success of ACO programs. Organizations in the ACO Investment Model achieved more than $380 million in savings between 2016 and 2018. These 483 ACOs serving more than 11 million Medicare beneficiaries performed better on care coordination, patient safety, and quality metrics than other organizations in the Merit-Based Incentive Payment System (MIPS).
A 2021 Value-Based Care Report by Humana also showed that members in a VBC cohort were highly engaged. They followed through with screenings and preventive care more consistently and achieved higher Healthcare Effectiveness Data and Information Set (HEDIS) scores than members in the non-VBC cohort.
A 2019 McKinsey report evaluated the impact of VBC arrangements on health system margins. It found that with just 1% to 2.5% of revenue at risk in a VBC arrangement, health systems had the potential to increase margins by 20% to 50%. These arrangements offered more upside opportunity than even health systems’ most profitable service lines. All of these reports and studies reinforce that VBC can work when implemented correctly.
Perhaps one of the biggest remaining questions is whether we can create viable VBC incentives to replace outdated and broken FFS payments. Several models were developed during the managed care experiment years, but none gained sufficient momentum to create lasting value.
In 1984 The Texas Heart Institute began charging a flat fee for cardiovascular surgery hospital and physician services. It was the nation’s first bundled payment model and demonstrated the ability to lower costs while maintaining high quality care. The success spurred additional bundled payment options in the early 1990s. While the concept was considered innovative, adoption was limited.
Capitated payment models also have their roots in the 1980s and 1990s. CMS and private payers were looking for options to lower costs and launched health maintenance organizations (HMOs) with the goal of limiting care consumption. But reducing total care without tools to monitor and assess care quality can lead to poor outcomes. Additionally, while employers paid HMOs based on capitated payment arrangements, most insurance companies continued with fee-for-service payment models. As a result, capitated payments didn’t take hold broadly.
Since launching VBC programs, CMS and commercial payers rolled out financial incentives that connect payments to quality and outcomes. To encourage buy-in, early models offered bonuses with little or no downside risk, but those have not achieved the kind of long-term savings required to overhaul our FFS system.
However, there are very encouraging developments that can help us accomplish our goals. Some look familiar but include more robust tools and incentives for enhanced viability. The most promising APMs today include:
These models increase quality and improve outcomes while reducing total costs. They are also the most economically viable for providers reducing the share of FFS payments as a percentage of total revenue.
One of the key reasons some of the early efforts at reducing costs failed to take hold was the inability to scale these models. Without technology to collect and analyze data, use that data to make decisions that improve care, and administer APMs, the tools to move from FFS to value-based programs just weren’t there.
Today, we have technology that enables value-based care delivery and payment with:
The technology available today has matured beyond basic EHRs and fee-for-service claims processing, and will be an essential part of the value revolution.
Making these changes is not optional, so it’s time to either march forward on this journey or fall behind. Let’s turn the page on healthcare history together.
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