What is Value-Based Healthcare? A Comprehensive Guide
In addition to the more widely known health insurance reforms brought about by the Affordable Care Act (ACA) in 2010, the law also sharpened the U.S. health system’s focus on value-based healthcare. The ACA specifically aims to address:
- Testing new models of health care delivery;
- Shifting from reimbursement based upon the volume of services provided to one based on the value of care, and;
- Investing in resources for systemwide improvement.1
The shift from a fee-for-service healthcare delivery model to a value-based care model, has significantly changed the way healthcare is delivered and reimbursed in the United States (US). As such, value-based care is a focus area for Veradigm. That's why we've compiled this comprehensive guide to value-based healthcare, complete with links to use-cases, relevant blog articles, white papers, and more.
What Is Value-Based Healthcare?
Value-based healthcare is a healthcare delivery framework that incentivizes healthcare providers to focus on the quality of services rendered, as opposed to the quantity. Under a value-based healthcare model, healthcare providers (including hospitals and physicians) are compensated based upon patient health outcomes. Clinicians who participate in value-based care agreements are rewarded for promoting healthy patient outcomes, reducing the chronic disease burden, and helping their patients live healthier lives through evidence-based medicine.2
Value-based healthcare programs are vital to a larger quality strategy to reform how healthcare is delivered and paid for. According to the Centers for Medicare and Medicaid Services (CMS), value-based care supports the triple-aim of providing better care for individuals, better health for populations, at a lower cost.3
How Does Value-Based Healthcare Work?
To illustrate how value-based healthcare works, meet Jason.* Jason is a 57-year-old male living in North Carolina. He has private health insurance through his job as an IT developer.
Jason visits his primary care physician complaining of shortness of breath and chest pain. His primary care physician is part of an Accountable Care Organization (ACO). ACOs are networks of doctors and hospitals who share financial and medical responsibility for providing coordinated care to patients.4 ACOs were developed to support the healthcare industry transition away from fee-for-service and toward value-based healthcare.
Because of his family history, and because Jason is overweight and smokes, his primary care physician is concerned that Jason may be at risk for cardiovascular disease (CVD). Jason’s primary care physician coordinates care with a lab facility who runs Jason’s blood work, and a cardiologist who screens Jason for markers of CVD.
After getting his labs back, Jason’s care team diagnoses him with atherosclerotic cardiovascular disease (ASCVD) which is a type of CVD. ASCVD contributes to the buildup of plaque on arterial walls, which can increase the risk of heart attack or stroke.
Because Jason’s care team is part of an ACO, he has access to a nurse care manager who helps educate him about ASCVD and lifestyle changes he can implement to improve his health. Jason’s physician has also prescribed him a lipid lowering medication to help lower his high LDL-C.
Jason regularly meets with a dietitian who helps him start a heart-healthy diet and encourages him to become more active. Jason’s nurse care manager helps him find a smoking cessation program that works for him.
Jason’s care team is working hard to treat him efficiently, without driving up unnecessary costs, all the while focusing on improving and maintaining his health. His care plan has kept him on his prescribed medication and encouraged him to live a healthier lifestyle, lose weight, and stop smoking. He has avoided the hospital and did not require any invasive, costly surgeries to treat his ASCVD.
Since Jason’s care team treats him and other patients with chronic disease, they have met many of their quality benchmarks for the year, thereby qualifying for value-based care financial bonuses from CMS.
Value-Based Healthcare vs. Fee-for-Service
There are fundamental differences between a value-based healthcare model and the more traditional fee-for-service (FFS) model. Under the FFS model, healthcare providers are compensated based upon the amount, or quantity, of services delivered.2 These services can include office visits, tests, procedures, or other treatments. Reimbursement rates are established for each service clinicians provide.
With the FFS model, clinicians are paid for each service individually. Therefore, healthcare providers are, in effect, incentivized to provide a greater number of services per patient.
After the passage of the ACA in 2010, the US healthcare system began to experience a shift in the way that healthcare services are delivered and paid for. Many healthcare delivery reforms were put in place to emphasize quality of care over quantity. These reforms, collectively, are often referred to as value-based healthcare.
Reimbursement for Value-Based Care
When transitioning from FFS to value-based care, a variety of reimbursement approaches are available to healthcare providers. CMS has created several different reimbursement models, while commercial payers have followed with variations and models of their own.
Pay for performance models offer incentives, based on performance and quality metrics, above the traditional fee for service schedule. Some of the most important quality metrics for value-based care include effectiveness and efficiency, timeliness, safety, patient focus, and equitability.
Further progression along the risk-reward pathway are shared risk programs, bundled payments, capitated payments and population-based payments. These programs may require additional investment in Health Information Technology (HIT), deeper quality and outcomes analytics and reporting, and care coordination with ACOs and Patient Centered Medical Homes.5
Types of Healthcare Reimbursement Models
| MODEL |
DESCRIPTION |
| Fee for service (FFS) |
Healthcare providers are compensated based upon the amount, or quantity, of services delivered2 |
| Value-based care (VBC) |
Healthcare providers are compensated based upon patient health outcomes 2 |
| Bundled payments |
A middle ground between FFS and VBC; healthcare providers coordinate care in advance and assume some risk by covering costs that go above the price of a single episode of care, but share the savings if they keep costs down while maintaining quality standards6 |
| Capitated payments |
Healthcare providers are paid a fixed amount of money per patient, per unit of time, in advance of delivering services 7 |
| Population-based payments (PBP) |
Healthcare providers are rewarded for meeting population-level targets; providers are accountable for patient-centric care for a specific population over a certain time period across the full continuum of care8 |
|
Why is Value-Based Healthcare Important
Value-based healthcare is important because the traditional fee-for-service model of healthcare delivery needs revision or replacement. Historically, too great an emphasis was placed on how many services a healthcare provider delivered versus the focus on the quality of care being delivered.
Among other issues, the focus on volume over value of care has contributed to the ballooning of healthcare costs in the US. Unfortunately, as you will read in the next section, these costs are often not commensurate with the health outcomes.
Value-Based Healthcare in the United States
In the US, healthcare is paid for in a variety of ways: through government programs (like Medicare and Medicaid), private insurance plans, and out of patients’ own pockets. Regardless of the sources of funding, healthcare costs in the US are higher than other countries, putting a strain on the overall economy.9 In 2018, healthcare spending in the U.S. totaled $3.6 trillion, or $11,172 per person. These spending numbers account for roughly 17.7% of the gross domestic product (GDP) of the U.S.10 In 2018, pure fee-for-service or fee-for-service with some connection to value accounted for almost two-thirds of healthcare payments in 2018.11
Unfortunately, higher healthcare costs do not always translate into better patient health outcomes. When comparing high-income countries in the Organization for Economic Cooperation and Development (OECD), the U.S. spends nearly twice as much on healthcare yet has the lowest life expectancy and highest suicide rates. In addition, the U.S. has the highest chronic disease burden and an obesity rate that is two times higher than the OECD average.12
These statistics illustrate the need to reduce the gap between the amount of money spent on healthcare and value provided as evidenced via patient health outcomes. One way to begin closing this gap is by shifting away from a fee-for-service model to one that implements value-based care principles. In the next section, we share some practical tips for how to implement value-based care.
Transitioning from Fee-Based to Value-Based Healthcare
While clinicians support the goals of value-based care, there are some challenges to adopting these programs. Providers may not have the infrastructure and staff to support value-based models. Programs can differ by payer with each plan having its own models, metrics, and documentation requirements.
One industry survey categorized several barriers to program participation including:
- Unrealistic goals;
- Complicated metrics;
- Risk and compliance concerns, and;
- Program length and a delayed payment cycle13
How to Implement Value-Based Healthcare
If you are a healthcare professional, there are steps you can take to begin implementing value-based care in your practice. According to the American Medical Association (AMA), there are five steps healthcare providers can take to prepare their practices for value-based care:
- Identify your patient population and opportunity;
- Design the care model;
- Partner for success;
- Drive appropriate utilization, and;
- Quantify impact and continuously improve.14
Following these five steps may seem straightforward, however, implementing value-based care is nuanced and should be done with proper thought and planning. For many physicians, this means striking a balance between fee-for-service and value-based care as their practices navigate traditional revenue cycle management.
When implementing value-based care, it is critical to embrace technology and establish partnerships to help make the transition seamless and cost effective. A good place to start is with a robust IT infrastructure, including an electronic health record system and population health management tools.15
Value-Based Healthcare and Veradigm
Veradigm is dedicated to simplifying the complicated healthcare system with next-generation technology and solutions. Our unique portfolio of solutions provides data-driven, actionable insights and are derived from best-in-class analytics. When integrated with point-of-care technology solutions, Veradigm is poised to help improve the quality, efficiency, and value of healthcare.
Veradigm’s innovative solutions help to promote value-based care initiatives for life sciences, health plans, healthcare providers, and most importantly, the customers they serve.
