Switching to Value-Based Healthcare from Fee-for-Service

The healthcare revolution is already here. It’s not the debate around Medicare-for-All nor the question of whether to repeal or expand the Affordable Care Act. It’s the continued shift from fee-for-service models to a system of value-based care. And while it’s largely taking place behind the scenes, it’s having enormous impacts on healthcare providers.

The transition to value-based care revolves around a recalibration of how healthcare is measured and how payments are reimbursed. The traditional model, known as fee-for-service, simply assigns reimbursements based on what services a healthcare organization provides. But in value-based care, reimbursement is contingent upon the quality of the care provided and it comes tethered to patient outcomes. This seemingly simple pivot of emphasis actually requires major changes on the part of healthcare providers.

The old fee-for-service model encourages healthcare providers to fill as many beds and perform as many high-tech procedures, as possible. That succeeds in driving up the cost of healthcare, but it doesn’t improve patient outcomes.

Value-based care, on the other hand, puts the quality of outcomes first, and by tethering reimbursement to this metric, incentivizes healthcare providers to prioritize patients. Both Medicare and private insurers have begun to adopt value-based models and providers, along with a fleet of healthcare administrators, have had to rethink how they can conform to the new system while meeting budgetary limitations.

Value-based care implies the question that all meaningful healthcare reform does: how are you going to pay for it? And, as with other debates around healthcare reform, the answers to that question are many, but also necessarily complex. The difference with the transition to value-based care, however, is that many of the solutions to funding are already in place and provide the opportunity for healthcare organizations to pick the one that works best for them.

There are four main forms of supporting value-based care:

• Shared Risk. In a shared risk model, all of a provider’s departments work towards reducing spending and meeting budgetary requirements while still providing quality care. They may also be required to pay back a portion of any financial overrun or loss they incur.
• Shared Savings. In a shared savings system, all departments within a healthcare organization share the financial load, so that money saved in one area can be redirected to another area in order to meet overall budgetary goals. Providers are paid a portion of any savings they generate when they come in under budget.
• Bundled. In a bundled system, healthcare providers cut back on services that are usually bundled together. This allows patients to personalize their care and avoid services they don’t need and providers can pocket the cost savings in the process.
• Global Capitation. In a global capitation system, short-term and long-term patients share costs amongst each other, and the payment model is based on a per-person, per-month (PP/PM) contract. This system can help reduce the financial burden of the healthcare provider while ensuring patients receive quality care.

Several combinations of the above exist, as do less-common methods of cost management. Each system is tailored to the organization or organizations using it. As the body of observable evidence increases, value-based care models will continue to progress and organizations can wean themselves off of fee-for-service reimbursement plans. The associated benefits, as well as the challenges, are plentiful.

Healthcare emits and absorbs an outrageous amount of data and a long-running challenge has been in how an organization can record, access, and share that data effectively.

With a value-based care model, however, the issue gains an added level of complexity: now that the goal is care quality and patient outcomes, different data points need to be collected and solved for. In a 2019 survey by Definitive Healthcare, approximately 15 percent of over 1,000 health leaders reported that access to patient information was one of the critical challenges providers faced when transitioning to value-based care.

To realign data to a value-based model may require an overhaul of one’s software, which can be costly and time-consuming.

Even though multiple models exist for organizations to shift their financial model to a value-based care system, many healthcare organizations are turning themselves into prototypes when they make the transition.

Revenue streams can be unpredictable in the first early cycles of a switch to value-based care and resources will often be stretched thin to cover for departments within a healthcare organization that can’t make the transition as easily as others.

A lack of resources was cited as the number one challenge for healthcare providers in transitioning to value-based care, according to survey results, with over a quarter of providers listing this as their most critical obstacle.

Value-based care is making inroads at a majority of healthcare organizations, but it’s often still competing with traditional fee-for-service models, which remain, for the moment, more profitable.

Within a single organization, both models may be in play across different departments. This creates disharmony in a facility’s overall operations and makes sharing with other organizations difficult as well. Survey results found that gaps in interoperability were the second biggest challenge for healthcare providers in transitioning to value-based care.

Unlike the fee-for-service model, value-based care naturally incentivizes providers to be more efficient and to lower unnecessary costs. With the emphasis shifted from symptom management to a more holistic system of patient care, providers are likely to invest in more effective and cheaper options such as telehealth and automated check-in procedures. While the start-up costs of these innovations may be significant, the long-term savings they provide will prove them to be sustainable. This is a win for providers as well as patients: what’s cheaper to one will be cheaper to the other, too.

The core tenet of value-based care is that it places emphasis on the quality of care, rather than the quantity of care provided. And an increase in the quality of care necessitates an increase in patient satisfaction—an important benchmark for healthcare providers and healthcare administrators.

A healthcare organization offering value-based care that comes with an increased rate of patient satisfaction is more likely to retain patients and their families and achieve higher scoring metrics than its competitors. Furthermore, a healthcare organization with streamlined processes and reduced waste is more likely to retain higher quality talent.

While fee-for-service models create a competitive relationship between different healthcare entities, such as payers and providers, a system of value-based care unifies these entities under a common banner, with an equal amount of risk shared between them. The amount of administrative waste between payers and providers is reduced further through bundled payments.

Even across multiple healthcare departments or facilities within an Accountable Care Organization (ACO), the shared risk and shared savings plans allow for a more unified distribution of funding and resources.

In 2015, the US Department of Health and Human Services set a goal of having 50 percent of Medicare reimbursements tied to value-based care by 2018. It’s not entirely clear to what extent that goal has been met.

According to a report from the Department of Health and Human Services, value-based healthcare payments were up to 34 percent in 2017. Some contemporary estimates have found 59 percent of healthcare payments being tied to value-based care. But another recent study suggests that while over half of all healthcare professionals are now participating in value-based models, many still report that a majority (three-quarters or more) of their organization’s revenue is tethered to fee-for-service models.

Further implementation of successful shared savings arrangements will require more cooperative partnerships between payer and provider, including the sharing of data and delineation of expectations. Surveyed providers and payers agreed that the most critical improvements that could be made to improve customer satisfaction centered around a more simplified, plain-language explanation of benefits.

Providers were also likely to request an increased standardization and sharing of quality and outcomes data, which could facilitate the co-development of risk management programs and the implementation of value-based care.

The transition to value-based care is already underway. As data around patient outcomes become increasingly available and accurate, so too will the efficacy of value-based models. Financial feasibility of such value-based systems, however, will remain in the hands of providers and healthcare administrators.