The Value-based Care Promised Land: It Will Take A Connected Village To Reach It
There is an old saying that “it takes a village to raise a child.” I have often thought of this analogy while contemplating the infancy and now adolescence of value-based care. As with any healthcare innovation, value-based care created quite a phenomenon when introduced fifteen years ago. In today’s vernacular, “it went viral.”
There is near-universal agreement about the benefits of a value-based care model, as well as its close cousin population health management. But recent surveys indicate that value-based care arrangements still represent less than twenty-five percent of healthcare providers’ total revenues. In my view, the primary reasons are that for both insurers and providers: (1) there is a substantial financial investment in the status quo (i.e., support systems underlying fee-for-service); and (2) fee-for-service payment models have continued to produce favorable and predictable financial results.
Scott Glasrud
A Look Back on Fee-for-Service
During my four decades in healthcare finance, the fee-for-service payment system has evolved into a labyrinth of payment methodologies, which have produced conflicting incentives for healthcare providers and numerous cross-subsidies between profitable and unprofitable payer categories and service lines. An entire industry of revenue cycle systems and consultants has grown to support the fee-for-service methodology. And behind the scenes, the industry’s technology, communications, and care coordination infrastructure did not allow for the needed data exchange to build a more connected system.
Until recently, the financial benefits of value-based care have largely accrued to either the insurer or the healthcare consumer. Shared savings from value-based care arrangements have not produced enough financial benefit for healthcare providers to justify major investments in them. Consequently, most healthcare providers have only tested value-based payment models with insurers in relatively small health plans or specific service lines. So, fee-for-service payment persists.
In the 1980s, CMS introduced inpatient and outpatient prospective payment to address escalating cost-based reimbursement. Health Maintenance Organizations (HMOs) were introduced by commercial insurers to better manage these cost increases through tighter provider networks and primary care gatekeepers. Many HMO arrangements with providers were based on capitated risk models (i.e., per member/per month). HMOs still exist today and dominate certain markets, but they have become less prevalent due to a backlash from healthcare providers and consumers who decried a lack of patient choice and barriers to care.
The Promise of Value-based Care
I view value-based care as a “back to the future” HMO methodology, with a much more promising future based on a “balanced scorecard” of cost, quality outcomes, and service. This balanced scorecard is now possible due to today’s robust insurance claims and quality data and the emerging ability to share it among all healthcare stakeholders to produce powerful data analytics supporting clinical and financial decisions. And the data support my optimism.
A 2015 report from the Deloitte Center for Health Solutions (DCHS) on value-based care models provided compelling data regarding the potential for Medicare savings from its bundled payment model for joint replacements. The standard deviation of total spending was calculated at 54% of the mean. Even more compelling was that post-discharge spending was 46% of total spending. And the variation in post-discharge spending was (1) 375% for readmissions; (2) 174% for hospital outpatient services; (3) 124% for post-acute providers; and (4) 113% for physicians and other professionals[1]. This report implied a substantial opportunity for savings from better communication and coordination across the continuum of care.
A more recent survey of 30 health system finance executives by DCHS regarding the likely benefits of price transparency and data interoperability found that: (1) 62% felt that care coordination, quality of care, and outcomes would improve; and (2) 54% felt that consumers will have improved decision-making and experience. However, only 35% thought overall health costs would decline due to market competition[2].
Over the years, I’ve seen more than one disruptive change in healthcare payment methodologies. These changes had two things in common:
They arose at a “tipping point” for the industry
They responded to the ongoing quest to contain rising health care costs by federal and state governments, employers, and individual patients.
Reaching the tipping point
In 2020, for the first time in memory, all providers felt the double-edged sword of relying on fee-for-service payments. The COVID-19 pandemic caused one of the worst financial periods in modern history for healthcare providers. Only hundreds of billions of dollars in financial relief from the federal government avoided a potential financial collapse in the healthcare system. In addition, new price transparency regulation and ongoing pressure to reduce commercial rate increases will limit providers’ ability to cover inflationary costs easily.
Successful value-based care models already exist—Northwest Metro Alliance in Minneapolis-St. Paul was launched in 2010 as an accountable care organization (ACO) by Allina Health and HealthPartners. It serves a community of 600,000 people in a county with high rates of chronic illness. The care coordination between its nine clinics, two hospitals, and numerous affiliated specialists reduced readmission rates by 25% and reduced Medicaid costs by 16%[3]. They accomplished these savings and improved quality by treating chronic pain to reduce opioid use, increasing access to mental health services, focusing on high school students’ health, and encouraging the use of generic drugs.
I predict that during this decade, value-based care alliances like Northwest Metro Alliance will begin to flourish and expand into more comprehensive ACOs. Insurers and providers now have the means and the financial incentives to partner in sharing data to reduce administrative costs, increase care delivery efficiency, and optimize costs and quality outcomes. All three of these imperatives will be necessary for both insurers and providers to increase market share and revenue growth[4].
The Quest to Contain Costs, Manage The Whole Patient, & Leverage Information Technology
Recently, the new director of the Center for Medicare & Medicaid Innovation (CMMI) indicated that CMS might implement a value-based care reimbursement model. If that happens, commercial insurers are likely to follow suit. This transition will require insurers and healthcare providers to focus on their balanced scorecards of cost, quality outcomes, and service. Insurers must better understand the risk factors of their membership and the efficiency of their provider networks. Providers will have to optimize their care continuum, requiring enhanced communication within their siloed departmental structures and with external providers across their post-acute network.
Social determinants of health (SDOH) are now recognized as having a significant influence on healthcare utilization and quality outcomes. SDOH factors include poverty rates, food insecurity, access to care, transportation limitations, and other environmental factors. Many providers are implementing new support services (e.g. transportation to medical appointments and coordination with public health agencies) for affected patients to better care for the “whole patient” and improve outcomes. Data capture and sharing of these SDOH measures between insurers and providers will be critical in managing at-risk patient populations[5].
In addition, the advances in computing and data interoperability provide the capability to produce powerful “predictive analytics” that can combine data from insurance claims with quality and SDOH data to provide a holistic view of a patient population. It can be used to help determine benefit eligibility while also identifying and rectifying disparities in access to care and patient outcomes[6].
I look forward to watching the transition to value-based care unfold with the help of the unlimited potential of healthcare information technology and hope a more collaborative healthcare ecosystem will emerge, leading to solutions to some of its most intractable problems.
I’d appreciate your feedback in the comments below.
Scott
Scott Glasrud is a member of the careMESH Board of Advisors, the President and Owner of SAG Enterprises and is a seasoned executive with over 40 years of experience in the healthcare industry. His experience includes over 15 years as the Chief Financial Officer of The University of Kansas Hospital, and nearly 3 years as Senior Executive Vice President & COO for UHC. Previously, he served as a Regional Director for Mercy Health Services Corp, providing overall financial direction to the Iowa Region of MHS, a $2 billion non-profit health system. You can read more from Scott by visiting his blog at healthcarebigideas.com.
[1] W. Gerhardt, L. Korenda, M. Morris, G. Vadnerkar, DCHS, The road to value-based care: Your mileage may vary, March 20, 2015.
[2] A. Phelps, C. Skalka, W. Gerhardt, C. Chang, DCHS, Greater transparency and interoperability in health care: Uncover strategic opportunities for health systems, January 25, 2021.
[3] Allina Health/HealthPartners, Northwest Metro Alliance Executive Summary 2010-2017.
[4] T. Jurek, M. Bethke, Deloitte Insights, Radical interoperability in health care: Measuring the impacts of care, cost, and growth, 2021.
[5] J. Lagasse, Healthcare Finance, Better data sharing between payers, providers can move the needle on social determinants of health, March 24, 2020.
[6] J. Frownfelter, HealthCareBusiness News, If we’re not careful, value-based care could worsen health disparities, September 7, 2021.