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The Rising Shift Toward Value-Based Care: What You Need to Know


Emcara Health Editors


May 06, 2022


As payers continue to manage the crisis brought on by the COVID-19 pandemic in 2022, we are witnessing a great shift in the way healthcare is provided. The fee for service reimbursement model is no longer the most efficient strategy and value-based care models have started to come into sharper focus. 

In fact, over the next 5 years, every healthcare organization in the US is estimated to face changes in their Medicare reimbursement. To get healthcare costs under control, the Centers for Medicare & Medicaid Services (CMS) is moving from the fee-for-service (FFS) system, which rewards quantity over quality, to value-based care (VBC) strategy, which encourages healthcare providers to deliver the absolute best care at the most economical cost, resulting in better patient health outcomes.

Currently, less than 20% of Medicare expenditure is value-based; the goal is to have nearly 100% of reimbursements linked to value-based contracts by 2030. In other words, about $1 trillion worth of financial risk will be moving from the government to health plans, hospitals, and physicians across the country.

Value-Based Care (VBC) Vs Fee-For-Service (FFS) Care Delivery Model

In the traditional fee for service care reimbursement model, healthcare providers are paid for the number of services they provide/perform. While providers may aim to improve health outcomes, this model doesn’t reward them for this.

So, understandably, this incentivizes providers to order more procedures and tests and manage more patients to increase their earnings. Costs of services are unbundled so each service is paid for separately.   

Now, due to concerns about poor performance on quality indicators and rising costs, many organizations (health plans, employers, and government buyers) are promoting the transition to value-based payment models.

The healthcare system is gearing toward replacing the nation’s dependence on fragmented FFS care with coordinated and all-inclusive care, using payment models that hold healthcare organizations accountable for quality gains and cost control. The entire premise of VBC is to align hospital and physician bonuses and penalties with quality, cost, and outcomes measures.

Improved Patient Outcomes and Lower Costs with VBC Models

The fee-for-service care model has allowed the cost variations for tests and procedures to increase dramatically, and the healthcare industry has spent significantly to treat patients. Yet, the percentage of positive patient outcomes has not risen as expected. This model also disrupts provider workflows. For example, a primary care physician has to see more patients, and each claim has to be processed in a disorganized network.

Value-based health care programs were designed by the federal government to improve patient outcomes and drive down care costs. These care and reimbursement models rely on advancing the quality of care while accounting for price at the point of care and increasing patient access. 

VBC reimbursements are calculated by using several quality measures and ascertaining the overall population health. Unlike the traditional FFS model, value-based healthcare services are driven by data because providers are required to report certain metrics to payors and show improvement. This means providers may need to track and disclose patient engagement, adverse events, hospital readmissions, and more.

Under this new model, a healthcare provider is offered an incentive to upgrade health IT, engage patients, use evidence-based medicine, and utilize data analytics to get paid for their services. When their patients receive more effective and coordinated care, providers are automatically rewarded.  

CMS has developed different value-based models for providers, such as patient-centered medical homes, bundled payments, and accountable care organizations.

Patient-Centered Medical Home (PCMH)

PCMH is where providers and medical personnel act as one coordinated care team to create the whole patient experience from the ground up. Patients in this setting can develop one-on-one relationships with their care providers, who evaluate their care needs based on both medical and environmental factors.

Bundled Payment

Also known as episode-based payment, bundled payment involves making one payment for all the services provided to the patient. Providers receive a single collective reimbursement for the estimated costs to treat certain conditions that may include several procedures, different care settings, and multiple physicians.

Accountable Care Organization (ACO)

 An ACO is a network of hospitals, physicians, and other providers that offer Medicare patients high-quality, coordinated care. One of an ACO's goals is to prevent unnecessary services while minimizing medical errors. If it succeeds in reducing healthcare costs and delivering quality care, the network shares the savings. Similarly, if it ends up spending more than the target, the ACO must repay some of the difference as a penalty.

How Can Health Plans & Providers Embrace this Shift?

To say that the pandemic exposed some weaknesses in care systems – not just in the US, but around the world – would be an understatement. The healthcare industry stakeholders cite a wide range of issues that need to be addressed to create a more sustainable system going forward. These issues include inequitable access to care, underfunded public health departments, and high levels of undiagnosed chronic conditions that worsen patient outcomes.

It’s not surprising that the value-based care model is attracting more and more attention, however, it is not a new concept. Many organizations in past years have shown interest and even taken initial steps to make it a reality but it never gained the traction it should have. As devastating as the pandemic has been, we can thank it for adding to the urgency.

Why? First of all, some providers experienced unfamiliar financial insecurity, as fees from elective procedures and routine visits dwindled due to shifts in resources. Second, population health management experts have been predicting a health crisis in the wake of the pandemic.

Over the last two years, fears of exposure to coronavirus have led many patients to delay or avoid preventive care and screenings. This has resulted in increased rates of late-diagnosed medical issues as well as poorer outcomes.

Also, the pandemic and lockdowns have led to a variety of harmful habits and increased chronic disease risk in the entire patient population. This can be attributed to factors such as excess alcohol consumption, unhealthy diets, reduced physical activity, and increased stress and depression.

Health plans are already struggling under the burden of managing chronic illnesses. If the population health management model doesn’t change, the escalation in care costs will become overwhelming. A shift to value-based care provides the opportunity to realign the incentives of patients, payers, and providers toward sustainably improving actual outcomes.

To support this shift, the following changes will go a long way when implemented by the insurers and providers:

Make the Most of Telehealth

Telehealth will continue to be a viable and cost-effective addition to in-person care after the pandemic recedes. Providers need to continue to offer this option wherever possible. While hands-on care is obviously important, virtual visits are efficient and convenient. In some cases, they can even be a better option since they can considerably expand access to both basic and specialized care for the entire patient population.

In addition to virtual doctor consultations, digital tools that facilitate remote monitoring can encourage patient engagement. For example, glucometers, blood pressure cuffs, scales and blood oximeters can all commonly make their way into remote patient monitoring today.

Solutions like these are vital tools for value-based care agreements.

Focus on Behavioral Health Just As Much As Physical Health

Telehealth has started to break down barriers between physical and emotional and behavioral health, and this trend should continue. Health plans and providers need to look at the whole patient. Even if multiple specialists are involved, they should be able to collaborate and communicate. Value-based care depends on integrated care and a coordinated care team that can share extensive data to ensure the best outcomes.

Both the CMS and commercial payers have started taking steps regarding behavioral and mental health VBC programming. The early results show improved psychological outcomes, reduced healthcare spending for co-morbid physical conditions, and millions of dollars in savings.

Emphasize Primary Prevention

As it is currently structured, the U.S. healthcare system is designed to care for the sick. Providers generally don’t have the time or the training to help their patients build healthy habits that would help prevent disease the first place.

Health plans and employers have tried to fill this void with a wide range of wellness initiatives (like meditation classes and gym memberships), but often initial enthusiasm for these solutions fades fast, and many of these efforts have been ineffective at significantly moving the needle.

Organizations must continue to look beyond managing unhealthy patients’ chronic conditions for innovative ways to encourage prevention through behavior change to truly improve health outcomes.

How Successful Can Value-Based Healthcare Models Be?

In 2015, the Department of Health and Human Services (HHS) reported that VBC models helped lower hospital readmissions in Medicare beneficiaries by 8% and the accountable care organizations had helped save $417 million for Medicare.

Now newer data from 2020 shows that savings have increased by 10 times since 2015 to a whopping $4.1 billion. On top of that, the latest forecasts from CMS expect all Medicare payments to go through VBC models by 2030.  

VBC models are still in their infancy and many healthcare providers are still trying to implement the proper systems to support them into their workflow. The transition from the FFS model to the pay-for-value model may be one of the greatest financial obstacles the U.S. healthcare system is facing right now.

While this change is expected to gradually happen over the next few years, CMS has announced aggressive goals for making the move with Medicare. This means providers need to effectively steer through the challenges posed by a payment model that calls for analyzing and sharing of data in ways that the FFS model never had to achieve.

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