Value-Based Care 101: Is quality the new quantity?

With Tom Price’s recent resignation and the GOP’s repeated efforts to repeal and replace the Affordable Care Act (ACA), issues surrounding healthcare access and cost are in the spotlight now, more than ever. Regardless of healthcare reform’s uncertain legislative future, there is broad agreement that to combat ballooning costs and improve health outcomes, our healthcare system must continue to shift from a fee-for-service (FFS) model to one that takes into account the quality of the care that is given to a patient, a concept known as value-based care (VBC).

What is Value-Based Care?

Despite spending more than twice what other developed nations spend per capita for healthcare, the U.S. continues to have lower life expectancy, greater prevalence of chronic disease and overall poorer health outcomes [1]. In an effort to buck this longstanding trend, the Affordable Care Act (ACA) was enacted to change the payment model of our healthcare system from the predominant fee-for-service (FFS) model to a value-based model.

Unlike the FFS model, where hospitals and clinicians gain increased revenue and profit by delivering more services to more people, regardless of patient outcomes or satisfaction, the value-based model is designed to deliver better, more affordable healthcare and reward clinicians based on the efficacy and quality of care delivered, as opposed to quantity. In this model, clinicians must think not only about enhancing outcomes and reining in rising costs, but also putting patients at the center of their care.

Value-based care and the emphasis on quality-based reimbursement are clearly gaining momentum within the industry. More than eight in 10 physicians and health plan executives say they believe the transition to VBC will continue in full force, regardless of legislative reforms spearheaded by the federal government [2]. And just this year, many healthcare organizations have announced VBC expansions and initiatives, including:

  • UnitedHealth, Aetna, and Anthem announced they’re now paying out nearly 50% of their reimbursements via VBC models. [3]

  • Excellus BlueCross BlueShield and Geneia agreed to partner to deliver value-based analytics and insights to the health plan’s 1.5 million members. [4]


Despite recent prominence, the concept of VBC is not new. These same core ideas were articulated as early as 1969 by Dr. Robert Ebert, Dean of Harvard Medical School, who stressed the importance of improving care delivery through effective collaboration amongst clinicians and centering on the unique needs of individual patients and populations: “The existing deficiencies in healthcare cannot be corrected simply by supplying more personnel, more facilities and more money. These problems can only be solved by organizing the personnel, facilities and financing into a conceptual framework and operating system that will provide optimally for the health needs of the population.” [5]

The journey begun by Dr. Ebert and similar like-minded clinicians and organizations has created a new way in which care is delivered: the responsibility—and risk—of outcomes and costs is shared by an entire coordinated care group of hospitals, physicians, and other clinicians. By focusing on improving individual and population health, reducing the number of avoidable emergency room visits and hospital readmissions, removing clinical inefficiencies and duplication of services, and improving patient outcomes at an earlier point across their patient population, clinicians will see financial benefits.

Money Talks

So just how are clinicians and hospitals reimbursed in the VBC landscape? Thanks to the Medicare Access and Chip Reauthorization Act (MACRA), the plethora of VBC payment models and programs has rapidly grown. This broad landscape can be distilled down into four main models, each with varying levels of financial risk and accountability:

  1. Pay for Performance: Hospitals and clinicians receive a financial reward if they meet or exceed agreed-upon quality or performance measures (e.g. reductions in hemoglobin A1c in diabetic patients). The programs may also reward improvement in performance over time, such as year-to-year decreases in the rate of avoidable hospital readmissions.

  2. Bundled Payments: Health systems and clinicians are paid one single payment for all the services performed to treat a patient undergoing a specific procedure. For instance, if a patient undergoes a hip replacement, the payer would collectively reimburse all clinicians involved (e.g. the hospital, surgeon, and anesthesiologist) using a set price for the entire episode of care. However, recent efforts to make participation in bundled payment pilot programs voluntary, instead of mandatory, have put this model in jeopardy.

  3. Shared Savings/Shared Risk: Health organizations are paid using the traditional FFS model, but at the end of the year, total spending is compared with a target; if spending is below the target, the organization can share some of the difference as a bonus. For shared risk, if an organization spends more than the target, it must repay some of the difference as a penalty.

  4. Capitation: A clinician or health organization receives a certain flat fee every month for taking care of a patient enrolled in a managed health care plan, regardless of the cost of that individual's care. Given that the majority of people enrolled in a health plan will never use health care services within any given month, capitation arrangements should naturally balance out the “high utilizers” in health plans with those members who use little or no health care every month.

While early adopter healthcare organizations have already conducted experiments with at least one, or a combination, of these payment models to see how well they can take on a greater level of financial risk, how the rest of the industry will respond and adapt to these payment models remains unclear, despite early positive learnings.


What kind of traction has VBC gained?

Adoption of value-based payment and delivery models is definitely on the rise. For instance, in response to Medicare’s Shared Savings Program, hospitals, physicians, and other clinicians have joined together to form networks, called accountable care organizations (ACOs), that share financial and medical responsibility for providing coordinated care to patients in hopes of limiting unnecessary spending.

However, other organizations are still hesitant to transition, as the level of financial investment for implementing a VBC model can be substantial, and the current FFS payment structure is still highly profitable for some. Although CMS has a goal of bringing 50% of Medicare reimbursements towards value-based alternative payment models by the end of 2018, a recent survey reveals that just under 25% of hospitals indicate their net patient revenue is value-based. [6]

While there are still a lot of holdouts that are waiting to see how the early adopters fare, it is expected that 48% of hospitals will report value-based revenue within the next three years. In another analysis conducted by the Accountable Care Learning Collaborative, ACOs covered more than 32 million lives by the start of 2017, up 7% from 2016.

Is VBC actually working?

So, is the growing emphasis on quality and value having a positive impact on patient health outcomes, or reducing healthcare spending? Survey says: it’s too soon to tell. Still, intriguing—if scattered—evidence is beginning to emerge that it might be.

  • Under the Hospital Readmission Reduction Program, which penalizes hospitals with high 30-day readmission rates for certain conditions, CMS' spending on readmissions fell $9 billion by 2014 and readmission rates for Medicare beneficiaries suffering congestive heart failure fell by 2.5%, according to a Kaiser Family Foundation analysis of CMS data. [7]

  • Participation in Medicare ACOs has also led to modest gains. A study led by J. Michael McWilliams, M.D., Ph.D., of Harvard Medical School examined a snapshot of 114 Medicare ACOs—a random 20% sample of beneficiaries—and found that such organizations notably reduced post-acute care costs. Between 2012 and 2014, the ACOs cut post-acute spending by 9%, or just over $100 per beneficiary, compared with a non-ACO control group. [8] The spending cuts, according to the researchers, can be linked to patients being treated at home or reductions in length of stay.

  • Anthem has already seen results from its value-based, patient-centered care program, Enhanced Personal Health Care, which has resulted in 5.7% fewer inpatient stays per 1,000 participating patients, a 3.5% decrease in emergency room costs, and a 7.4% reduction of acute admissions for at-risk patients with chronic medical conditions. [9]

  • Evaluation of Medicare’s Comprehensive Primary Care (CPC) initiative, a collaboration between public and private payers, concluded that CPC appears to have reduced total monthly Medicare Part A and B expenditures per beneficiary by 2%, due to favorable impacts on hospitalizations and emergency department visits. The evaluation also found a 4% reduction in unplanned 30-day hospital readmissions. CMS aims to build on these results by offering two tracks with different payment options to better accommodate the diverse needs of primary care practices through its Comprehensive Primary Care Plus (CPC+) initiative. [10]

It’s a Minefield, Not a Cakewalk


Despite some early successes, healthcare organizations still face critical challenges to successfully implement a value-based model. To make VBC work for them, clinicians and healthcare systems must transform their infrastructure to solve:

  1. Cumbersome reporting: An underlying assumption for the VBC model is that the quality and cost metrics by which clinicians are evaluated against can be easily measured and reported. In reality, performance measurement is arduous, at best. To account for the sheer number of metrics being reported, some physician practices spend on average 15 hours per week tracking metrics. [11]

  2. Poorly structured data: Nearly two billion new medical notes are produced each year, the vast majority of which is unstructured and prone to errors. And ICD-10 codes assigned to cases at the point of care have error rates between 20-50% even before counting data entry and management errors. [12] Organizations will need to identify and implement the proper tools to allow for the rapid and routine collection of structured data.

  3. Workflow integration: Many clinicians are struggling to integrate VBC practices into their daily operations, citing a lack of timely data and information sharing as significant barriers to success. Early advances in adopting electronic health records (EHR) hasn’t resulted in the much-anticipated leap of progress necessary for clinicians to effectively leverage digital health data and analytics to optimize value-based payment models in their practices.

  4. Lack of protocol: Finally, understanding and choosing the appropriate value-based payment model can be a challenge due to the variety of options available. There are no standard protocols that organizations can follow for adopting VBC models, and currently, there is little evidence-based research available as VBC adoption is still in early stages.

So, is VBC the inevitable future for healthcare reform?

Maybe. For clinicians, there are both immense opportunities and challenges tied to transitioning to a quality-based care model. Those who can deliver on cost and patient outcome measures will be able to reap the financial incentives and avoid penalties while providing higher quality care for their patients.

With Tom Price’s departure as head of Health and Human Services, many policymakers and clinicians are optimistic that VBC will continue to gain momentum (Price was a loud detractor of VBC reform initiatives). Although it remains unclear who will fill Price’s role, we’re hopeful that forward-thinking healthcare leaders will guide the strategic direction of this administration towards more coherent and compassionate health policy.

Whoever takes the HHS helm, more experience and experimentation with VBC, combined with additional evidence from early adopters, is necessary to pave the way for more widespread adoption of value-based models. This paradigm shift must be led on two fronts—the government and healthcare organizations—to nurture cultural change and systemic reform from within.

So what tactics can clinicians and healthcare leaders take to increase their chances of success in a value-based care world? Stay tuned for Part II: Tactics to make Value-Based Care Work for Your Organization.