Value Based Payment

Value-Based Care Is a Better Investment for Everyone

May 24, 2018 2:51 pm

Griffin Myers will be presenting at HFMA’s 2018 Annual Conference, taking place June 24-27 in Las Vegas. This blog post touches on the theme of his presentation, “Creating a Team-Based Approach to Value-Based Care.” For more information or to register, go to

It is hardly an uncommon opinion that, in many ways, our healthcare system is broken. 

The fee-for-service system has predictably evolved in ways that increasingly remove the role of care providers from real results for patients. In charging insurance providers based on services rendered, many healthcare providers and their organizations—however well intentioned—have an incentive to deliver more services and bill more for them rather than focus on providing appropriate care.

This fee-for-service system is reflected in the CMS-1500 form (or its electronic counterpart, the 837P standard). The form, which is required by the Centers for Medicare & Medicaid Services (CMS) to request payment to a provider for a covered service, asks submitting providers essentially two things: What did they do for the patient? And what diagnosis did the the patient have to justify that action?

It’s important to notice the form doesn’t ask if the treatment was effective, nor does it ask how the patient experienced the treatment or whether it was ultimately worth it. With no tie to actual results for patients, this system encourages a dangerous cycle.

The Fee-for-Service Cycle

Because the current system creates the incentive for increased volume of services, healthcare providers and their organizations may provide additional services that may or may not always be necessary. As the aggregate cost increases from increased utilization, policymakers and/or payers react by cutting rates, which encourages providers to redouble their efforts to do more and bill more. In the end, costs become unsustainable and patients suffer. 

The key to ending this cycle is a value-based system that prioritizes high-quality care over rendering more services.

Value-based care motivates providers to focus on real outcomes, because they aren’t compensated based on whatever tests they run or procedures they conduct. They’re compensated based on the value they create for patients—the quality of the outcome divided by the cost to provide it. The CMS leadership team, across multiple administrations, has been thoughtful about supporting value-based care, which can be seen through programs including ACOs, MACRA, and a variety of other pilot programs. While change of this magnitude is difficult, the objective we all share is better care at a better price. This is worth pursuing, whether you’re a policymaker or a clinician. 

Through the Patient’s Eyes

Consider the “average” Medicare patient. According to the Medicare Payment Advisory Commission (MedPAC ) and CMS, she is a 73-year-old Caucasian woman with high blood pressure and high cholesterol. She lives in an urban neighborhood living at around 200 percent of the federal poverty line.  

If she were being treated in a standard fee-for-service model, she’d visit the hospital to be assessed and receive a diagnosis and medications. The hospital would bill the insurance provider for tests and services provided. It’s up to the patient to identify a need and make the visit in the first place and again on her to fill her prescriptions and maintain her health. 

An ideal value-based model would handle this case differently, by making health care as accessible as possible and taking social determinants of health into account. Evidence shows that over 80 percent of morbidity is a result of a nonmedical, social factor outside the exam room (like an inability to attend appointments due to lack of transportation) rather than the quality of care received. In a fee-for-service setting, these crucial factors often go unaddressed. 

In a value-based model, the healthcare provider would not only invite the patient to receive care and offer treatment but also ensure the patient shows up in the first place by providing transportation if necessary. Great healthcare organizations would ensure she thoroughly understands her diagnoses, can afford necessary medications, and can complete her course treatment.

Such tasks have been outside of the scope of work for healthcare organizations thus far, but things are changing.

Value-based care holds healthcare providers accountable for the long-term health of the patient, motivating them to provide efficient and effective care. This is the kind of care most providers wanted to be delivering in the first place. 

A responsible budget is set, a phenomenon that encourages the most efficient delivery of evidence-based care. Expensive diagnostics become tools for care rather than revenue centers, and waste is rightly minimized.

The efficiencies of the full-risk, value-based model prove to be better investments not only for patients but also for healthcare providers. 

Shared Savings Versus Full Risk

An important consideration when moving to a value-based model is whether to adopt a shared-savings approach versus take on full risk. A shared savings model feels naturally less risky, but it also reduces the incentive for innovation and investment in patient care.

Consider this simple example: A project, new service, or innovation costs $1 to build and returns $1 in value every year starting the first year of investment. The internal rate of return of that investment (–1,+1,+1,+1,+1,+1) for the first five years is 97 percent.

However, if the same project—which creates the same outcomes for patients—is undertaken in a 5 percent shared-savings regime, that project (–1,+0.05,+0.05,+0.05,+0.05,+0.05) has an internal rate of return of –34 percent.

As this example illustrates, a hospital or health system has no incentive to invest in a shared-savings model because the investment wouldn’t capture any value for the organization, even though patients clearly would receive value from the investment. However, properly designed and practiced in the right patient populations, a value-based model can create the incentive for a healthcare organization to innovate and to deliver measurable value for patients. 

Many groups are finding success in specific patient populations, and that success suggests we are on the edge of an important breakthrough in the organization of the delivery system. In a value-based model, providers can spend more time with their patients and less time running unnecessary tests to pursure better outcomes at more fair prices. And if healthcare providers can provide more efficient treatment, they have more resources to invest in improved care for every patient. That’s how we replace a vicious cycle with a virtuous one.

Griffin Myers, MD, is co-founder and chief medical officer, Oak Street Health, Chicago.


googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text1' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text2' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text3' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text4' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text5' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text6' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-text7' ); } );
googletag.cmd.push( function () { googletag.display( 'hfma-gpt-leaderboard' ); } );