Part IV – Value-Based Payment

This is the fourth and final installment for my series on the Health Affairs Council on Health Care Spending and Value’s February 2023 report, “A Road Map for Action.” Each piece details one of the four priority areas within the report, which include recommendations on how the U.S. can take a more deliberate approach to moderating health care spending growth while maximizing value. I served as co-chair of this initiative, along with former FDA Commissioner Dr. Margaret Hamburg. This final piece outlines our recommended actions on value-based payment. Click here to read Part I, Part II and Part III.

Over the past few years, the health care sector has undergone a cultural shift toward not only prioritizing better value and more comprehensive care but also in how these services are paid for. The days of strictly fee-for-service payment models – where physicians or health centers are paid for each individual service provided – are dwindling. And value-based payment models have stepped into the fold for both public and private sectors.

In an effort to drive down rapidly growing healthcare costs, value-based care and payment models have garnered a lot of attention for their potential to curb costs while simultaneously improving outcomes. These models come in variety of shapes and sizes, combining innovative arrangements that prioritize quality of care rather than quantity of services provided. Some examples of these models include bundled payment, accountable care organizations, and even full global capitation.

But the emergence of value-based payment models has not come without challenges.

In fact, the benefit from implementing these types of models has been modest, and so far has not resulted in significant savings to payers, providers, or patients. And due to the complexity and variability of these unique payment models – though creating an environment ripe for innovation – there has been very little data that can be used to track progress or best practices.

To date, most research has focused on savings attributable to accountable care organizations (ACOs), which were established under the 2010 Affordable Care Act. Studies have shown Medicare savings ranging from just under 1 percent to over 6 percent of total per person spending. And research results are mixed when examining savings achieved from bundled payment models. There’s even less data available on capitation models, likely due to the fact that there are so few U.S. delivery systems that receive capitated payments as their primary reimbursement source.

The Centers for Medicare and Medicaid Services (CMS) believes they need to retool their approach to value-based payment, informed by learnings from early models. As CMS leadership explained in a 2021 Health Affairs piece, offering too many models made value-based payment “overly complex” and at times created “opposing, even conflicting incentives.” Additionally, the voluntary nature of the models “limit the potential savings and full ability to test an intervention, because participants opt in when they believe they will benefit financially, and opt out (or never join) when they believe they are at risk for losses.” Indeed, more than half of health care payments are still based on fee-for-service.

Critics are quick to argue that modest savings result from fundamental flaws in value-focused payment reform, but the Health Affairs Council on Health Care Spending and Value believes that the lack of savings could be the result of design and implementation challenges that demand investigation and experimentation. Ultimately, the Council saw a clear need to further examine the ability for value-based payment models to significantly drive down the cost of healthcare services, recognizing that they can play a critical role in developing a fiscally responsible health care system.

Despite the minimal reported savings we are optimistic that continued experimentation with value-based payment will yield positive results. Furthermore, value-based payments are the only approach among our recommendations that can simultaneously address all four levers driving the growth in health spending: 1) price of care, 2) volume of care, 3) mix of services, and 4) growth of price & volume.

Here are our four recommendations to drive future implementation of these models:

  1. Fewer models and better alignment among payers: The Council supports the Center for Medicare and Medicaid Innovation to move to limit the number of value-based payment models being used. The Council also encourages more public and private collaboration – particularly on a local, regional basis – to choose and implement a limited number of models that address the more specific needs of our communities.
  2. Stronger incentives for patients: The Council recommends that patients be increasingly incentivized to obtain value-based care from entities like accountable delivery systems or provider groups. These incentives could potentially include patient or member “lock-in” to a specific delivery system that is accountable for their care.
  3. Increased levels of financial and clinical risk for payees: The Council supports increased financial risk, meaning raising the portion of savings or losses for which payees are responsible, and increasing the breadth of services for which for which payees are at risk, which will increase delivery system flexibility. This will give delivery systems more specificity in determining how to treat and manage their patient populations and to do so more efficiently and effectively.
  4. Exploration of incentives for addressing non-medical determinants of health: The Council recognizes that many nonmedical social factors affect the way patients navigate health care services and ultimately health outcomes. Already, some payers and health systems are experimenting with providing support for patients to access services such as housing, food, and transportation systems. We recommended that these incentives be offered more broadly.

Underlying each of these recommendations is the recognition that health care extends beyond the four walls of our clinics and hospitals. Social factors or nonmedical determinants of health are inextricably linked to health outcomes and can determine when and how often patients seek care.

One of the many strengths of value-based care models is the ability to address nonmedical drivers of poor health outcomes and provide patients with better quality, more accessible, and more affordable care. Many value-based organizations in both the public and private sectors are already leading here.

For example, companies like Monogram Health – a company I helped start in 2019 (and currently serve as chair of) — uses value-based care models to transform renal care and has developed highly promising frameworks where they are able to improve patient outcomes while reducing costs and improving access.

When I asked how Monogram has been so successful this is what CEO Mike Uchrin told me:

“Monogram’s value-based care model is working because we carefully developed our clinical interventions to focus on very specific evidence-based care pathways, which have been demonstrated in clinical research to improve patients’ health outcomes. However, the most important aspect that has driven the widespread adoption of Monogram’s value-based care model is that we structured our financial and clinical care solutions to meet the regulatory, clinical, and financial needs of the insurance products with the highest prevalence rates of kidney and polychronic disease – Medicare Advantage, Dual Eligible Special Needs Plans, and Medicaid Expansion Plans. Because we take on key programmatic regulatory responsibility in our value-based care model, like that of complex case and disease management as well as medication therapy management, government sponsored health plans are able to accelerate adoption because we efficiently and effectively integrate Monogram’s care delivery services into their financial bids, provider network as well as clinical program models of care.”   

Monogram’s value-based care platform educates and supports patients while providing comprehensive, multidisciplinary care services for chronic kidney disease, end stage renal disease, and other polychronic conditions. This model prioritizes value and quality of services. And, in doing so, they are making treatment more affordable and putting patient experience up front and center.

For these innovative, modern companies, it’s not just about saving money. It’s also about providing better quality of and access to care. And this is the real value in value-based care: the ability to change how patients navigate the health care industry and make health care more accessible and affordable.

The potential for value-based payment models, I believe, is immense. And, if we prioritize the four key recommendations of the Council, these models have the potential to systemically drive down the overall costs of health care services while improving the costs, experiences, and health journeys of individual patients.