Value Based Payment

Value-Based Care: Past, Present, and Future

June 5, 2017 2:10 pm

As healthcare providers prepare for the shift to value-based care, they may find the key to success lies within lessons learned from the past. Value-based payment (VBP) programs are constantly in flux, each iteration attempting to fix the issues of its predecessor, but the end goal is the same: provide better health outcomes while keeping costs in check.

As healthcare organizations work to implement new programs, they can benefit from reviewing the shortfalls of fee-for-service models as well as lessons from implementations and evolution of the VBP models, from episodes of care and capitation to the Centers for Medicare & Medicaid Services (CMS) programs implemented since 2010. Understanding these models, the best practices associated with them, and the investment strategies necessary for successful implementation will steer leaders in provider organizations and health plans to profitable outcomes.

Past: A Brief History of Value

Healthcare organizations have been working to implement value-based payment models for more than two decades, and some of the lessons learned from early projects remain relevant. Case-rate models, also called episode-of-care models, allowed caregivers leeway to provide services they felt were most appropriate and eliminate services that were not necessary. 

Two issues arose from these early implementations. The first unintended consequence for health plans was that there was no constraint on the number of episodes or determining if patients were in the proper episodes of care for their conditions. This isn’t a big issue for cases such as pregnancy, but it can be problematic for others with many different treatment options and high complexity levels, such as heart surgery. Second, the trust between providers and health plans that was integral to success in early value models was also elusive. Savvy physician groups created separate entities for different types of cases. Complex or complicated cases were submitted to be paid on a fee-for-service model, and straightforward cases were billed through the case-rate model via a second business entity. This practice maximized revenue for the caregiver but went against the spirit of the agreement with the health plan.

Capitation was implemented to address some of the shortfalls in the episode-of-care model, which gave way to modified capitation models that accounted for the severity and extent of the patient’s condition(s). The capitated models successfully controlled the number of episodes of care as well as the cost of any one episode. Bundled payments further improved efforts to implement value-based payment. Value-based care models have evolved to address some of their initial unintended consequences, and since the Affordable Care Act (ACA) was passed in 2010, CMS has implemented numerous value-based programs. In addition, health plans have remained committed to VBP models and have implemented some of their own.

The expansion of VBP models has led to new organization structures, such as accountable care organizations (ACO), to deliver care. Efficacy of these programs is somewhat difficult to determine, as the information tends to be proprietary and the metrics for success are contained in the contracts between payers health plans and providers. CMS’s 2015 ACO quality and financial performance results for Medicare ACOs sheds some light. Even though only one-third of the ACOs earned shared savings payments, this number represented an increase over 2014 of about 5 percent. In 2015 the participating ACOs generated a total savings of $466 million compared with $422 million in 2014, indicating movement in the right direction. CMS announced in December 2016 that it will expand the use of bundled payments.

Present: Lessons Learned

To succeed in VBP models today and into the future, healthcare organizations must focus attention—and resources—on a few key areas, including technology and market pressures.

Leveraging technology investments. Major investments have been made in electronic health record (EHR) systems, but few organizations have fully realized the anticipated returns on those investments. A practice’s ability to leverage its EHR system is directly related to the process and technology changes that are implemented after the system is installed and running. Simply implementing an EHR will not automatically ensure an uptick in quality and savings; healthcare organizations must employ data analytics to leverage the data that is now available to fully realize expected returns on their EHR investments.

Market, business, and policy analysis. Setting aside the uncertainty surrounding a potential repeal of the ACA, the healthcare industry has experienced market pressures new and old, including talent wars. A December New York Times report describes how one ACO, Cornerstone Health Care in High Point, N.C., was put under tremendous financial pressure when a competitor began recruiting away highly paid specialists, leaving the ACO with few physicians to generate revenue. Understanding local markets, the competitive pressures, and the payment models of competitors is required work for organizations that are contemplating moving to a VBP model.


To solidify an investment in a VBP model, a healthcare organization should pursue the following three areas of inquiry and action: understanding implementations of previous VBP models and the unintended consequences, looking for ways to lower risks when significant investment is required, and fully analyzing the local markets along with government policy will help a healthcare organization solidify its ROI.  

Nick Vennaro is the co-founder of Capto Consulting, Hartford, Conn. 


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