Why are Value-Based Payments Dominating Healthcare and How Do I Align My Network?

Why are Value-Based Payments Dominating Healthcare and How Do I Align My Network?

There is an intense amount of pressure within the healthcare industry to improve patient outcomes and reduce costs simultaneously.

Most believe solutions lie within Value-based healthcare (VBHC) in its various models.
Around the world, governments, healthcare providers and payors are collaborating to transition into a more sustainable direction.

In looking at our own backyard, according to Peterson-Kaiser Health System Tracker, the United States spends more on healthcare than any other country. Yet we also have the highest rate of medical error and disease burden. This is why value-based payment (VBP) models are being more and more utilized in the healthcare industry.

Understanding the transition…
Typically, in the fee-for-service model, payors reimburse providers for services provided to patients from an approved list. With the VBP model, providers are accountable for both the cost and the quality of care they deliver to the patient; they can also be penalized for not providing positive outcomes.

Value-based methodologies and payment systems strive to provide measurable goals to providers – providing quality services by using evidence-based practices and reducing the overall cost of care. The Centers for Medicare and Medicaid Services, state health departments and health systems individually determine the level of payment a provider receives by tying the cost and quality of care targets to the service. These regulated targets provide guideline to the providers and hold them accountable in not cutting corners at the expense of the patient outcome.

Quality measures include:

1. Post-hospitalization readmission rates
2. Provider-to-patient ratios
3. Percentage of patients receiving preventative care (such as immunizations).

Value-based payment models:

1. Bundled Payments: With the Bundled Payments model, providers are reimbursed a fixed, predetermined fee to perform all the services associated with a given procedure, rather than an individual fee. Providers benefit financially when they perform procedures in a cost-efficient and effective manner, avoiding unnecessary procedures while prioritizing care for preventable complications.
2. Capitation: Providers working within capitation models take full financial responsibility and risk for the health of a defined patient population. Government entities or commercial organizations pay a fixed, usually annual, premium, and those premiums are pooled together to fund care for the entire population. This model enables providers to spend funds however maximizes the health of their covered population. The more successful they are at managing services, the more premium funds they can apply to the bottom line, rather than to direct care costs. This model focuses on the delivery of high-quality and cost-effective care, and avoids overutilization, unnecessary and/or duplicative services.
3. Shared Savings: In a shared savings model, Healthcare organizations work with provider entities to reduce health care spending by offering providers a percentage of any net savings realized as a result of their efforts in managing patient care. Shared savings is not a payment model but can be used as an incentive in conjunction with several models, including fee-for-service and value-based models.
4. Shared Risk: A step beyond Shared Savings, providers working under this model still share in any recognized savings but are also expected to pay for any care delivery costs exceeding the payor-set budget. This model has both risks and rewards for the provider and for the payor.
5. Pay for Performance: Under this model, physicians receive financial bonuses for achieving specific quality and cost targets. However, this model is often deployed as an overlay to fee-for-service payments, which can incentivize the provision of costly, and sometimes unnecessary care. By moving to paying for performance, payors receive additional value from the providers in their network and create partnerships above and beyond the norm in the healthcare industry.

The momentum is building…

The Centers for Medicare and Medicaid Services has been leading the way for value-based payment models through various programs that design, pilot, and reward providers’ and payors who participate in them. In addition, commercial insurers like United Health Group, Aetna, Humana and BlueCross/BlueShield have also been influential proponents of these models. Together, these organizations are learning, educating, and providing a structure that carries the momentum towards paying for value instead of paying for volume.

As reported by, Health Care Payment Learning and Action Network (LAN):

• 34% of all U.S. healthcare payments in 2017 were tied to the value of care delivered, up from 23% in 2015.
• As more payors and providers hop on the VBP bandwagon, evidence of their positive influence on care quality and cost-effectiveness is growing.
• In the first half of 2018, Blue Cross Blue Shield providers participating in value-based payment models reduced care costs by 35%. They also saw a 15% decrease in hospitalizations and 10% decrease in emergency room visits among their patients.

Although these reduced percentages are solid start, change isn’t always easy and the reluctance to change is being observed throughout the provider community.

Concerns from providers include the belief that quality measures are too complex to achieve, and that physicians do not have all the information they need about their patients to improve outcomes. Some payors also believe that physicians lack tools necessary to succeed in a value-based payment model.

The provider concerns are realistic because they are realizing clinical and financial success in a value-based payment model requires innovative business models, and great skill in population health management that many providers have not developed.

Additionally, shrinking margins due to an older, sicker U.S. population and costly treatments, combined with payors’ pressure to deliver a better return on care dollars invested, may push providers toward VBP despite their concerns. That may prove to be a good thing in the long run—as more and more success stories are reported. This evidence points toward the value-based payment models as a step in the right direction for healthcare.

For more information on Value-based payment models and how paying for value versus volume can increase positive outcomes and decrease costs, visit the Health Care Payment Learning and Action Network at: https://hcp-lan.org/.