In 2019, 3.8 trillion dollars was spent on healthcare in the United States, and it’s estimated that this number will surge to 6 trillion by 2027. Yet, according to the Kaiser Family Foundation, compared to similarly wealthy countries, the U.S. continues to rank last in healthcare access and quality. 

Since the passage of the Affordable Care Act (ACA) in 2010, value-based care (VBC) has been lauded as healthcare’s saving grace. 

Prior to the ACA, the Centers for Medicare and Medicaid Services (CMS) paid providers for each service they provided, regardless of patient outcomes. This model, called fee-for-service, often resulted in fragmented care as well as ballooning healthcare costs for both payers and patients. 

In contrast, value-based care seeks to shift the provider’s focus from what or how many services are being delivered to how they are being delivered, as in quality and efficiency. 

Fast forward to 2020 and value-based care continues to transform health care, sending the implicit warning that those who don’t adapt to this new reality may get left behind. 

How Value-Based Care Can Affect Your Bottom Line 

As the pioneer of value-based care, CMS has launched several ways to encourage value over volume. Here are the three examples: 

Value-Based Programs

These programs pay for performance. In this way, providers assume financial risk as they care for patients. For example, in the Hospital Value-Based Purchasing (VBP) Program, CMS adjusts a hospital’s Medicare severity diagnosis-related group (or MS-DRG) payment, depending on whether certain metrics were met. These measures include: 

• Safety, such as hospital-acquired infections
• Clinical outcomes, such as those related to specific surgical procedures
• Cost efficiency (Medicare spending per beneficiary) 
• Patient and caregiver satisfaction, through the HCAHPS survey 

The hospitals that meet these standards are granted a bonus, but the hospitals who don’t are penalized up to a 3% reduction of their MS-DRG payment. In 2020, 10 hospitals in the VBP Program collectively received over $1 million in bonuses while 1,200 hospitals collectively received a penalty of $88,000. 

Accountable Care Organizations (ACOs) 

Originally designed by CMS as an alternative payment model (APM), ACOs allow doctors, hospitals, and other healthcare providers to form partnerships that ensure patients will receive coordinated health care at the lowest cost possible. As of January 2020, Medicare has 558 ACOs that serve more than 12.3 million people. 

According to CMS, “When an ACO succeeds both in delivering high-quality care and spending health care dollars more wisely, the ACO will share in the savings it achieves for the Medicare program.” However, in some cases, the ACO may also have to assume any financial losses if quality metrics are not met. 

Bundled Payments 

With this APM, CMS pays providers a predetermined flat rate for an episode of care. To illustrate, for a hip replacement, rather than paying the surgeon, hospital, and anesthesia provider separately for services provided, CMS will pay one lump sum payment to the providers collectively to share amongst themselves. 

If the providers spend less than the predetermined flat rate, they can keep the savings. However, if they spend more than the flat rate, CMS will not reimburse them any additional money. For this reason, being as cost efficient as possible is paramount for providers who participate in bundled payments. 

Does Value-Based Care Work?

It appears that the answer varies depending on the reimbursement model, payer, and provider. 

For example, in terms of quality, a 2019 study by Harvard Medical School researchers found that value-based care provided by insurer Blue Cross Blue Shield led to better preventative care as well as improved management for chronic illnesses. Conversely, a 2016 study found that, despite its numerous quality metrics, CMS’ Value-Based Purchasing Program did not significantly cause lower mortality rates. 

As far as costs, there’s skepticism that value-based care is even sustainable in the long run. For instance, in 2018, CMS noted that many ACOs that weren’t subject to penalties were actually contributing to increased healthcare costs, thus compelling CMS to increase the financial risk of ACOs. 

However, will providers — particularly ACOs — continue to participate in alternative payment models if the financial stakes outweigh the potential incentives?

Undoubtedly, payers and providers continue to wrestle with how value-based care should work in the U.S. They must determine what is value and how to deliver this value in a way that benefits providers, payers, and most importantly patients. 

The Future of Value-Based Care

The uncertainty that clouds value-based care has led many providers to continue to rely on the fee-for-service model. In fact, a poll released in March 2020 by Xtelligent Healthcare Media revealed that, currently, 48% of the healthcare industry relies on fee-for-service reimbursement.

Still, the fee-for-service model is increasingly being tied to performance, especially with CMS, the largest payer in the U.S. Private insurers, such as Humana, as well many states have embraced their own version of value-based reimbursement. Further, some of these payers have even started private ACOs that provide service to millions of individuals. So, value-based care is here to stay, regardless of any challenges along the road. 

In the end, poor patient outcomes can mean financial disaster, especially for smaller or rural hospitals who may already be operating on a tight budget. 

To curb financial losses due to value-based care, it’s important for providers to prioritize collaboration amongst each other — which can be enhanced through several ways, including innovative technology. But one under appreciated way is trust. 

Trust is paramount because everyone working within a healthcare organization must share the same culture regarding high quality healthcare. Further, any partnerships with outside providers, such as anesthesia providers, need to further reflect this mission in a cost-efficient manner. 

Sources:

National Health Expenditure Projections 2018-2027 Forecast Summary

Kaiser Family Foundation. How does the quality of the U.S. healthcare system compare to other countries? August 20, 2020.

Health Catalyst. Value-Based Purchasing 2020: A 10-Year Progress Report. April 1, 2020.

Centers for Medicare and Medicaid Services. Accountable Care Organizations (ACOs). Updated February 11, 2020.

Centers for Medicare and Medicaid Services. CMS Proposes “Pathways to Success,” an Overhaul of Medicare’s ACO Program. August 9, 2018.

Revcycle Intelligence. Healthcare Reimbursement Still Largely Fee-for-Service Driven. March 26, 2020.