VBC is a novel reimbursement methodology linking payment directly to the quality of care provided. It functions as a promising alternative to conventional fee-for-service reimbursement, rewarding healthcare providers for efficiency and effectiveness, as opposed to the sheer volume of services.
To catalyze this transformation, the Centers for Medicare & Medicaid Services (CMS) has introduced various VBC models like the Medicare Shared Savings Program and the Pioneer Accountable Care Organization (ACO) Model, thereby triggering a shift in private payers towards accountable, value-based care.
Discover the challenges and benefits of VBC and what it means for the healthcare industry.
The Distinction between Value-Based Care and Fee-for-Service Models
In the conventional fee-for-service payment model, healthcare providers were reimbursed based on the volume of services they offered. This system motivated them to order more procedures and tests and manage more patients to increase their earnings.
Payments were derived from what private market payers would provide and a fraction of what Medicare would pay for equivalent services. Charges for services were also itemized, meaning each service was individually compensated.
With the fee-for-service models, the fluctuating costs for procedures and tests led to higher spending in the healthcare industry, despite no significant improvements in patient outcomes. Moreover, the system strained healthcare providers' workflows as physicians had to see more patients and process each claim within a disjointed network.
In response, the federal government crafted value-based care programs to curb healthcare costs while enhancing patient outcomes. These reimbursement and care models pivot on improving the quality of care, broadening patient access, and considering costs at the point of care.
Value-based reimbursements are determined by a variety of quality metrics and the overall health status of populations. Unlike the traditional model, value-based care is data-driven, requiring providers to report to payers on certain metrics and demonstrate improvements. Metrics such as hospital readmissions, adverse events, population health, and patient engagement may need to be tracked and reported.
Understanding Value-Based Care Models
Value-based care models vary, often depending on the level of risk assumed by providers and the sharing of potential savings or losses. Here are some types:
Accountable Care Organizations (ACOs)
An ACO is a collaboration of physicians, hospitals, and other providers that offers coordinated, high-quality care to Medicare beneficiaries. The program was developed by CMS to ensure patients receive the most suitable care at the right time, aiming to reduce unnecessary services and medical errors.
Providers willingly participate in ACOs like the Medicare Shared Savings Program, Advance Payment ACO Model, or the Pioneer ACO Model. If the ACO can deliver high-quality care and cut healthcare costs, the provider network shares the savings. However, they may also have to take on some financial risk and potentially repay Medicare if they fail to deliver value-based care.
Bundled Payments
A bundled payment, or episode-based payment, is a single compensation for all services rendered for a specific care episode. The payment covers the anticipated costs for treating a certain condition involving multiple physicians, care settings, and procedures.
For example, instead of paying a hospital, surgeon, and anesthesiologist separately for surgery, CMS would consolidate the payment. Historical prices determine the bundled payment amount.
Bundled payments involve some risk. If providers can reduce service costs below the bundled payment, they retain the savings. However, they incur a financial loss if costs exceed the bundled payment.
Patient-Centered Medical Homes (PCMHs)
A PCMH is a care delivery model that coordinates patient care via a primary care physician. It aims to offer patients a centralized setting for addressing their diverse healthcare needs.
PCMH certification shows that providers offer patient-centered, team-based care, focusing on population health management, personalized care management, care coordination, and consistently high-quality care. Patients in a PCMH can anticipate building unique relationships with their care providers, who determine healthcare needs based on both medical and environmental factors.
A PCMH based in Colorado reported a 15% reduction in emergency department visits, an 18% decrease in inpatient admissions, and a return on investment of $4.50 for every dollar spent through this value-based care model. Another PCMH in Maryland stated that it saved $98 million and increased its quality scores by 10% within a year.
Though value-based care is relatively new for many healthcare providers, the benefits underscore the importance of integrating this approach into their workflows.
What Are the Benefits of Value-Based Healthcare Delivery?
The advantages of a value-based healthcare system radiate out to everyone involved, including patients, providers, payers, suppliers, and society as a whole.
Patients attain better health at a lower cost. Chronic conditions like cancer, diabetes, high blood pressure, COPD, or obesity can demand significant time and financial investment from patients. However, value-based care models aim to hasten recovery from illnesses and injuries and prevent chronic diseases from developing in the first place. As a result, patients can expect fewer doctor visits, medical tests, and procedures, and they tend to spend less on prescription medication as their health improves both in the short and long term.
Providers realize efficiencies and increased patient satisfaction. Even though providers may need to invest more time in prevention-based patient services initially, they ultimately spend less time on chronic disease management. Quality of care and patient engagement tend to increase when the emphasis shifts from volume to value. Furthermore, providers aren't subjected to the financial risks inherent in capitated payment systems. Under a value-based care model, even for-profit providers, who can deliver higher value per care episode, are poised to reap rewards.
Payers manage costs and mitigate risk. The risk is diluted by spreading it across a larger patient pool. A healthier population with fewer claims means less depletion of payers' premium pools and investments. Value-based payments also enable payers to enhance efficiency by bundling payments that cover the entire care cycle for patients, or, in the case of chronic conditions, periods spanning a year or more.
Suppliers match prices with patient outcomes. Suppliers can leverage the advantage of aligning their products and services with positive patient outcomes and cost reduction. This becomes a compelling selling point, particularly as national health expenditures on prescription drugs continue to escalate. Many stakeholders in the healthcare industry are advocating for manufacturers to price drugs in correlation with their real value to patients. As individualized therapies become more common, this process is likely to become more straightforward.
Society experiences improved health while curbing overall healthcare expenditure. Less money is spent on managing chronic diseases, expensive hospital stays, and medical emergencies. In a country where healthcare costs make up nearly 18% of the Gross Domestic Product (GDP), value-based care offers the potential to drastically cut overall healthcare spending.
The Challenges Of Value-Based Care
Data Collection, Integration, And Interoperability
Due to the massive amount of data being amassed, healthcare providers have been grappling with how to accurately record, access, and share this data. Successful migration to a Value-Based Care (VBC) system heavily relies on proficient data collection, integration, and interoperability.
Shifting Policies And Programs
Healthcare providers trying to transition from a fee-for-service (FFS) model to VBC have found it difficult to navigate the ever-changing value-based incentive programs introduced by the Centers for Medicare and Medicaid Services. Since the program became mainstream in 2012, there has been a constant flux of new regulations and policy revisions, creating an environment of uncertainty.
Volatile Revenue Streams And Financial Risk
In essence, VBC aims to shift the financial risk of healthcare provision from payers to providers, rewarding them for reducing costs and enhancing patient outcomes. On the surface, this seems risky. There's a gap between the concept of compensating physicians for quality care and the reality of implementing it. Compensation is crucial to the physician and the practice alike, so the shift to a new care model can induce worry about shared risk or financial penalties.
Scarce Resources And Inefficient Workflows
Insufficient internal resources and inefficient workflows are often cited as obstacles to the adoption of VBC. Overworked staff, administrative glitches, and ineffective technology all obstruct patient care collaboration and make the transition to VBC challenging.
Struggle In Securing Buy-In
To adopt VBC, a practice needs endorsement from all relevant stakeholders. While this might appear relatively straightforward for a smaller practice, larger health organizations could find it considerably more challenging as numerous leaders need to approve changes to payment and care models.
Value-Based Care Success Stories
In 2015, the Department of Health and Human Services (HHS) reported that 20 percent of Medicare payments were made through a value-based, alternative payment model. HHS also noted that Accountable Care Organization (ACO) programs had saved Medicare $417 million and that value-based payment models helped reduce hospital readmissions in Medicare beneficiaries by eight percent.
Updated statistics from 2020 indicate that savings have multiplied tenfold since 2015, reaching a total value of $4.1 billion. Furthermore, the latest forecasts from the Centers for Medicare and Medicaid Services (CMS) predict that all Medicare payments will be made through value-based models by 2030.
One CMS initiative that has quantified the success of value-based care is the Value Modifier program. This program adjusts Medicare payments based on quality assessments, either positive or negative. In 2016, only 129 physician groups received an increase in Medicare payments of 15.92 percent or 31.84 percent.
The majority of physicians, representing 8,208 in total, will not see any change in payment adjustment due to neutral performance or insufficient data.
Value-based care remains a novel concept for many healthcare providers, and a significant number are still in the process of incorporating the appropriate systems into their workflow.
Trends In Value-Based Care Models
Catering To Patients' Needs
Traditional healthcare settings like clinics or hospitals are increasingly being replaced with alternative delivery sites. Retail spaces, homes, and other community locations are becoming the new centers for healthcare delivery. Stores like CVS, Kroger, Rite Aid, Walgreens, Walmart, and others are expected to establish more primary care sites on their premises. These retail-based health clinics will offer services like vaccinations, screenings for infections and pregnancies, and treatment for minor illnesses and skin conditions.
Additionally, this shift from conventional healthcare settings is expected to promote health equity by enhancing access to care among vulnerable demographics like the elderly, homebound, and people living in remote areas. A recent New England Journal of Medicine survey found that 67% of health leaders believe that the availability of retail health clinics has improved access for these patient groups.
Rise Of Employer Direct Contracting Programs
The perspectives of employers, patients, and providers on health benefits significantly affect access to care. Thus, benefits design must align with VBC programs.
Financial pressures are likely to speed up employer direct contracting strategies, with employers demanding more responsibility for costs and outcomes. Companies like Walmart and Morgan Health are not only self-funding, but they are also offering primary care services within their facilities. These efforts to coordinate health benefits with the location of care delivery should continue as employers aim to optimize plan designs.
Prioritizing Patient Engagement
A well-planned benefit scheme is part of a successful VBC program, but patient involvement in managing their health is crucial. Outcomes improve for everyone involved – providers, payers, self-funding employers, and patients – when patients have access to care and their health information.
Moving healthcare from traditional settings to homes and communities will significantly enhance patient engagement. This shift enables patients to play a more active role in their care. Although the use of virtual care has dropped since the pandemic's peak, partly due to the preference for personal interaction with providers, telehealth will remain a permanent component of care delivery.
Impact Of Capitation
Capitation models, like direct primary care or behavioral health, can help employers by fixing service costs. For providers, capitation ensures a predictable revenue flow, diminishes the need for large internal billing departments, and quickens reimbursement time. Due to the mutual benefits, an increase in the use of these programs is anticipated.
Investments In Interoperability And Data Digitization
As VBC and alternative payment models gain traction, self-funding employers will need third-party administrators who have invested in related business processes and technology infrastructure. Success in VBC requires digitized data and analytics at the individual patient level. The advent of artificial intelligence technologies, machine-learning algorithms, and robust data engineering frameworks are necessary to make this transition possible. Investments in technology infrastructure and human capital are increasing to ensure the success of VBC programs.
Rise Of Value-Based Administration
The implementation of VBC programs and networks by more employers and benefits consultants will necessitate value-based administration (VBA). VBA is essential for sharing data and ensuring payments across a multistakeholder network.
A robust infrastructure that allows data sharing between network participants is necessary. Such an infrastructure can support various evolving, shared-risk reimbursement models considered a form of VBC.
As the influence of Social Determinants of Health (SDoH) on patient outcomes and healthcare costs becomes more recognized, VBC networks must continue to incorporate Community-based Organizations (CBOs). These organizations can share SDoH and other data, offer services, and coordinate care. However, their limited budgets may hamper digital technology investments, making their inclusion challenging.
Unfortunately, many legacy third-party administrative systems are ill-equipped to efficiently administer these programs on a larger scale. These systems cannot often manage complex care networks where multiple stakeholders play diverse roles while complying with rapidly evolving VBC models.