The Promise and Challenges of Value-Based Care

For over a decade, a central idea in healthcare reform has been gaining traction: shifting the focus from paying for the volume of medical services to paying for the value of healthcare delivered – keeping patients healthy. This model, known as value-based care (VBC), incentivizes doctors and hospitals based on patient health outcomes and the overall cost of care, rather than simply rewarding the number of tests and procedures performed. Even as the concept is sound, achieving widespread success has proven challenging.

What is Value-Based Care?

Value-based care is a healthcare delivery model where providers, including doctors and hospitals, are paid for patient health outcomes. The Centers for Medicare & Medicaid Services (CMS) defines it as focusing on quality, provider performance, and the patient experience. The “value” in value-based care reflects what the patient values most. This often involves coordinating care across multiple providers, focusing on preventative care, and managing a patient’s overall health, considering their individual goals. For example, coordinating blood work so a patient only needs one clinic visit, or proactively managing chronic conditions to avoid emergency room visits and hospitalizations.

Why Hasn’t Value-Based Care Fully Delivered?

Despite its potential, the impact of value-based care has been limited. A Congressional Budget Office report found that federal payment-reform programs – key tools for implementing VBC – cost $5.4 billion more than they saved between 2011 and 2020. These programs haven’t yet significantly reduced healthcare costs.

Two primary factors contribute to these challenges:

• Financial Intermediaries: Consulting companies and management firms involved in these programs often capture a significant portion of the savings generated – up to 40 cents of every dollar – reducing the funds available for direct patient care.
• Limited Scope: Many programs don’t include the sickest and most vulnerable patients who require the most intensive, coordinated care.

Where Value-Based Care is Showing Promise

Despite the overall challenges, some VBC programs are succeeding. Those that are physician-led and hold doctors genuinely accountable for both the cost and quality of care demonstrate positive results. Research indicates that when primary care teams have the tools and financial responsibility to manage health, they deliver better outcomes for patients and the healthcare system.

In 2022, Medicare’s flagship VBC program resulted in nearly $2 billion in savings, with the largest gains consistently coming from physician-led, primary care-centered organizations.

The Path Forward: Increasing Accountability and Expanding Scope

Abandoning value-based care would be a mistake. Instead, improvements are needed to maximize its potential. Key strategies include:

• Eliminating “No Downside Risk” Programs: Programs that offer bonuses for savings but impose no penalties for exceeding cost targets lack real accountability. Introducing financial risk is crucial to incentivize fundamental changes in care delivery. The Trump administration took a step in this direction by launching programs with longer contracts (up to 10 years) to allow practices time to invest in care coordination.
• Engaging Specialists: While primary care is crucial, it alone cannot control costs. Specialists – cardiologists, orthopedic surgeons, oncologists, radiologists – account for a large portion of Medicare spending and have historically operated outside of cost and outcome accountability. New CMS programs are beginning to change this, requiring specialists to share in the financial consequences of their decisions. Extending this accountability framework to more specialists could potentially save $100 billion annually.
• Longer-Term Investment: Longer contracts between payers and providers allow for investment in patients’ long-term health. Doctors should be rewarded for preventative care, like prescribing obesity medication, even if the savings aren’t realized until after the contract ends.
• System-Wide Accountability: The ultimate goal is accountability for all providers – hospitals, specialists, and primary care doctors – for the total cost of a patient’s care and solid health outcomes. Maryland’s experiment with setting an overall budget for hospital spending demonstrates that cost discipline and quality of care are not mutually exclusive.

Challenges and Considerations

Transitioning to longer contracts and greater accountability will likely create anxiety among providers, particularly smaller practices and those serving low-income communities. Strong risk adjustment and safeguards against excessive financial volatility are essential to ensure a fair and sustainable system.

However, the status quo is unsustainable. With nearly one in five dollars spent on healthcare, and Medicare’s trust fund potentially depleted within the next decade, incremental gains are insufficient. The success seen in individual practices – where patients are healthier and staying out of the hospital – demonstrates the potential of a system where more patients can experience the same benefits.